Moderna CEO comment derails markets, while EasyJet stomachs £1.1 billion loss

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“It only took one comment from the boss of drugs firm Moderna to derail markets once again. Stéphane Bancel said he believed existing vaccines would struggle with the Omicron variant, leading to a renewed sell-off in shares and oil prices,” says AJ Bell Investment Director Russ Mould.

“Markets hate uncertainty, and this is precisely what we have now. No-one knows how much trouble the new variant is going to cause, and so it seems plausible that we will see heightened volatility on the markets until there is adequate data to better understand the lay of the land.

“However, in the bigger scheme of things today’s sell-off could have been a lot worse. European markets were down 1% or less. That’s become a normal day’s movement on many occasions over the past year or so.

“The biggest contributor to the FTSE 100’s 0.8% decline in points terms was pharmaceutical company AstraZeneca, perhaps as investors reacted to the warning from Moderna’s boss that existing vaccines wouldn’t work as well with the new variant. That might lead some investors to think AstraZeneca’s earnings forecasts might need to be downgraded.

“Though it would be far too premature to see that happen immediately given the lack of sufficient data to prove Stéphane Bancel’s theory.

“Interestingly some of the big mining stocks saw share price gains. If the new variant causes disruption to economic recovery, one might conclude that commodities demand could weaken. However, the fact that stocks like Anglo American are rising in a falling market would suggest that investors aren’t panicking and automatically dumping anything economically-sensitive.”

Easyjet

“While EasyJet’s £1.1 billion pre-tax loss makes for uncomfortable reading, that’s the stark reality of the airline industry at present. Capacity remains restrained as travel restrictions have prevented airline operators from truly being able to make the most of the post-lockdown pent-up demand from consumers to get outside and see the world again.

“The airline sector saw a flurry of activity this summer and then again during the October half term as travel restrictions began to ease and consumers felt more comfortable flying. A lot of people will have missed their usual summer foreign holiday for two years in a row so there is a feeling that summer 2022 could be a bumper period for companies like EasyJet.

“So far, so good, but along comes the Omicron variant and the return of consumer uncertainty and renewed travel restrictions. That suggests it could be a bleak winter for EasyJet, but fortunately it raised £1.2 billion a few months ago and has enough money to see it through another difficult patch.

“But what happens if we get variant after variant of Covid-19? There are only so many times that shareholders will bail out airlines with another cash injection.

“Consolidation in the industry seems inevitable. EasyJet has already been subject to a takeover approach thought to be from Wizz Air, and it is no doubt in the sight of other players like International Consolidated Airlines.

“EasyJet is attractive strategically to many other airlines because of its strong position in the Western European market. It is pressing on with growth plans to try and increase its market share during the coming months, leaving it better positioned once the proper airline recovery happens.”

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