Omicron and dollar thwart global equities winning streak

  • Global equities retreat, although up 17% year-on-year
  • Tech boom takes Wall St indices to record highs
  • Global COVID-19 Infections Hit All-Time High in 7 Days
  • Oil seems to end the year up more than 50%

LONDON, Dec. 30 (Reuters) – Global stocks ended a seven-day streak on Thursday as Omicron’s spread around the world clouded the year’s cumulative gains, lowered oil prices and drives up the dollar.

Sentiment was, however, supported by signs that governments, despite coronavirus cases reaching record levels, are trying to limit the economic damage by relaxing isolation rules rather than resorting to lockdowns. Read more

The MSCI Global Equity Index managed a 17% gain for the year, led by gains of 28% and 22% respectively in the S&P 500 and the European STOXX 600 (.SPX), (.STOXX) .

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On Thursday, the index fell slightly, although European markets (.STOXX) edged higher and futures contracts implied a slightly firmer open on Wall Street,.

Despite concerns, the opinion appears to be that the highly transmissible variant of Omicron COVID will be less lethal than feared, said Holger Schmieding, chief economist at Berenberg.

“The markets are picking up the story of the rebound, the story of the recovery for 2022,” Schmieding said, noting that the rise in bond yields reflected expectations of an economic recovery and, subsequently, a reduced pace of support from the central bank.

There was also relief in Asia, where South Korea’s 5.1% rise in industrial production could indicate some easing of supply chain issues. Chinese stocks were up nearly 1% versus Beijing, signaling interest rate cuts in 2022 (.CSI300), though they are expected to end 2021 down 5.5%. Read more

Japanese stocks on their last trading day of the year slipped 0.4% – an annual gain of 4.9% but below a three-decade high reached in September (.N225).

Shares of the semiconductor superpower Taiwan (.TWII) ended with an annual jump of 24%.

However, persistent inflation and the resulting hawkish turn by the US Federal Reserve are cause for concern for markets, with investors starting to consider a first rate hike as early as March.

Two-year US Treasury yields have jumped 55 basis points since September to settle at 0.75%, near the highest since March of last year. However, reflecting expectations of a relatively short and shallow rate hike cycle, 10-year rates reacted much less, rising by around 20bp over this period. They are up 4 basis points on the week but fell 1.6 basis points on Thursday.

Rising borrowing costs in the United States took German 10-year rates to -0.19%, near a one-month high and up 15 basis points since September.

The Fed’s outlook combined with recent Omicron jerks to support the US dollar, which is expected to see a second month of gains. The greenback was up 0.4% against a basket of currencies at 96.2, rebounding from a three-week low hit on Wednesday when it was hit by the resumption of risk appetite.

Meanwhile, the yen saw broad year-end selling over the past week, with the dollar hitting its highest level since mid-November at 115.06 yen.

“The front-end of the US rate market is forecasting further rate hikes in the curve now, so FX could be a battle, once again, between optimism about the global recovery and expectations about the Fed.” said Kit Juckes, strategist at Company. General.

However, oil prices fell, penalized by concerns about growing demand and the news that China had cut its first batch of crude oil import quotas by 11% in 2022, a sign that ‘it would act against inefficient small refineries.

Brent crude futures fell 0.6% to $ 78.74 a barrel, slipping for the first time in four days.

However, Brent has climbed more than 50% this year, adding to the boost in global inflation. The impact was evident in Spanish data showing December’s annual inflation rate was the highest at year-end since 1989 read more.

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Reporting by Sujata Rao, additional reporting by Julien Ponthus, Stefano Rebaudo and Wayne Cole, editing by Hugh Lawson

Our Standards: Thomson Reuters Trust Principles.

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