COVID | Monetary Policy & Inflation
We know too little about the new Covid-19 variant, Omicron, to make sweeping calls on the economic or market impact. However, to evaluate how the market will trade this development after Friday’s crazy moves, we can flip the potential outcome tree. That is, we can analyse the micro distributional effects to discover the general macro impact. The question is, what from Friday’s price action was noise/overreaction and what was signal?
First, What Do We Know?
Three dimensions matter for evaluating the virus: contagion, immune escape, and pathogenicity.
The big fear right now is that the 32 mutations in the Omicron spike protein could significantly reduce vaccine efficacy. The vaccines were designed to work on a spike protein that now looks very different. Beta and Delta had three and eight mutations respectively. However, someone inoculated within six months could still have very high protection against the new variant, even if it is somewhat reduced. That, at least, should buy plenty of time for the creation of vaccines designed to deal with Omicron. Pfizer has already said it could adjust its mRNA vaccine in six weeks and start shipping in 100 days.
We know too little about the new Covid-19 variant, Omicron, to make sweeping calls on the economic or market impact. However, to evaluate how the market will trade this development after Friday’s crazy moves, we can flip the potential outcome tree. That is, we can analyse the micro distributional effects to discover the general macro impact. The question is, what from Friday’s price action was noise/overreaction and what was signal?
First, What Do We Know?
Three dimensions matter for evaluating the virus: contagion, immune escape, and pathogenicity.
The big fear right now is that the 32 mutations in the Omicron spike protein could significantly reduce vaccine efficacy. The vaccines were designed to work on a spike protein that now looks very different. Beta and Delta had three and eight mutations respectively. However, someone inoculated within six months could still have very high protection against the new variant, even if it is somewhat reduced. That, at least, should buy plenty of time for the creation of vaccines designed to deal with Omicron. Pfizer has already said it could adjust its mRNA vaccine in six weeks and start shipping in 100 days.
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