IBEX 35, Coronavirus, Omicron Variant, Global Growth – Talking Points
- Omicron variant has reignited fears of lockdowns, travel restrictions
- The Spanish Benchmark sits at a key support level following Tuesday's session
The IBEX 35 Index rounded out a dismal month on Tuesday by finishing 1.78% lower, as fears continue to grow regarding the Omicron Covid variant. November's decline is set to be the largest monthly decline since March 2020, when risk assets across the globe sold off as Coronavirus spread. November's tumble of 8% still dwarfs the decline of over 22% in March 2020. While vaccines have helped ease pressure on risk assets, the Spanish equity benchmark has still underperformed its continental peers.
Recent volatility in the FX space, particularly the Turkish Lira, may partly explain recent underperformance by Spanish equities. BBVA, a major Spanish bank, has expanded into riskier markets as the conglomerate seeks more attractive growth opportunities. BBVA has stepped into a hotbed for monetary policy, as the Central Bank of the Republic of Turkey (CBRT) has cut interest rates by 300 basis points as inflation approaches 20%. Despite domestic assets now looking very cheap to foreign investors such as BBVA and Santander, uncertainty in Turkey may weigh on interested and invested IBEX constituents.
While it is still early days in the battle against the Omicron variant, the possibility of increased transmissibility poses a severe threat for the Spanish economy. With cases already detected in Spain, it is only a matter of time before the variant spreads elsewhere. Omicron's emergence comes at a time when market participants were busy navigating supply chain bottlenecks and rampant inflation. Omicron at this point may add to near-term uncertainty, which has been reflected in price action over the last few sessions.
IBEX 35 Index Daily Chart
Chart created with TradingView
With the fundamental construct coming under pressure with the emergence of the Omicron variant, the Ibex 35 has fallen to a key support level at 8,250. The index notably put in a bottom at this level during the July pullback. Should this level hold, market participants may look for price to search out the massive gap that was created during Friday's leg lower. A break of 8,250 could see a test of the 0.618 Fibonacci retracement at 8,171, with clean air below that to 8,000.
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--- Written by Brendan Fagan, Intern
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