European shares gain despite Omicron fears
European shares have risen, bucking the weakness in Asia and on Wall Street, as investors looked beyond the spread of the Omicron coronavirus variant and sought to buy any dip in stock prices ahead of a slew of central bank decisions this week.
Despite fears that the Omicron variant is leading to another round of government restrictions that will slow economic growth, stock markets have held up well and rebounded fast – the S&P 500 last week enjoyed its strongest week since early February.
There is plenty for investors to be nervous about ahead of a series of central bank meetings including from the Federal Reserve, when traders are poised for policymakers to signal the pace of interest rate rises needed to curb inflation, as well as from the European Central Bank, Bank of Japan and Bank of England.
But investors appear happy to ‘buy the dip’ and move back into stocks, although volumes have also been lower in recent weeks with many traders reluctant to take on new positions before year end after a very strong rally in 2021.
“Everyone has their hands in their pockets at the moment, first because of the major (central bank) events that are coming up and also because most people had a fairly successful year and don’t want to blow it at the end of the year,” said Colin Asher, Senior Economist at Japanese bank Mizuho.
By 0900 GMT, the EURO STOXX 50 was 0.42 per cent higher. German shares gained 0.36 per cent and Britain’s FTSE 100 climbed 0.53 per cent. That followed falls across European markets on Monday when a Wall Street selloff hit sentiment.
Wall Street futures rose on Tuesday.
Asian shares didn’t fare so well. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.73 per cent, as the Asian Development Bank (ADB) trimmed its growth forecast for developing Asia, reflecting risks brought on by the new virus variant.
China’s CSI300 index dropped 0.67 per cent, after health authorities in Tianjin detected the country’s first Omicron case.
Hong Kong’s Hang Seng Index weakened 1.55 per cent, also dragged down by persistent concerns over the health of China’s property sector.
MSCI’s gauge of stocks across the globe was unchanged on the day.
The Fed on Wednesday is expected to signal a faster wind-down of its $120 billion a month bond buying program to fight a high rate of inflation, which could move it one step closer to raising interest rates.
The dollar edged marginally higher ahead of the upcoming meetings.
The dollar index was last at 96.382 while versus the euro it stood $1.1284. The euro is seen as vulnerable given expectations the Fed will tighten policy faster than the ECB.
“Volatility will remain elevated throughout all of (these) decisions from the Fed, ECB, and BOE,” said Edward Moya, senior analyst at OANDA.
Fears over the Omicron variant of COVID-19 were heightened after British Prime Minister Boris Johnson warned of a “tidal wave” of new cases, and the World Health Organisation said it poses a “very high” global risk, with some evidence that it evades vaccine protection.
Oil futures reversed earlier falls as OPEC predicted in its monthly report that the Omicron variant’s impact on fuel demand would be mild.
Brent futures were 58 cents, or 0.77 per cent higher at $74.98 a barrel, while US West Texas Intermediate (WTI) crude increased 54 cents, or 0.76 per cent, to $71.82.
Oil prices remain way off levels above $85 a barrel seen in mid-October before the variant was discovered.
The benchmark US 10-year Treasury yield traded 1 basis point higher at 1.436 per cent after falling on Monday as traders positioned for a hawkish Fed.