Stocks up as traders park COVID, Fed fears
Stock markets have roared higher, reversing much of the previous session’s losses, as investors used the dip in prices to bet the latest COVID-19 variant would not derail the economic recovery.
MSCI’s gauge of stocks across the globe was up 0.42 per cent by 0900 GMT on Wednesday, having shed 1.5 per cent the previous day, when investors took fright at a warning from drugmaker Moderna that existing vaccines are unlikely to be as effective against the Omicron variant.
In Asia, stocks rose 1.1 per cent as traders reversed course after a sharp sell-off the day before took the regional benchmark to a 12-month low.
Mark Haefele, chief investment officer at UBS Global Wealth Management, predicted the focus on the potential threat from Omicron would not last.
“We expect market focus to gradually shift away from Omicron and toward positive growth and earnings trajectory, allowing equities to resume their upward course, and for some of the cyclical markets particularly negatively affected by recent developments, including Japan, the Eurozone, energy, and financials, to outperform,” he said.
Oil also rebounded after steep falls in the previous session, ahead of a meeting by the Organisation of the Petroleum Exporting Countries (OPEC).
US West Texas Intermediate (WTI) crude futures rose 3.88 per cent, to $68.75 a barrel. Brent crude futures gained 4.17 per cent, to $72.12 a barrel.
Global markets had also come under selling pressure on Tuesday after Federal Reserve Chair Jerome Powell said asset purchases may need to be tapered faster to fight rising inflation.
Kerry Craig, global market strategist at JPMorgan Asset Management, said the comments caught some off guard.
“At present the market focus has been on Omicron and the potential that can disrupt the world, but the real focus should be on the Fed and the rate policy. That’s the biggest shock to come out of the last day or so,” he said.
Powell’s comments had pushed US Treasury yields higher, especially at the short end of the curve.
The yield on two-year notes, which reflects short-term interest rate expectations, rose to as high as 0.622 per cent on Wednesday, up from as low as 0.4410 per cent on Tuesday, when traders were speculating the new variant could lead to a more dovish Fed.
Benchmark 10-year notes also sold off, last yielding 1.5022 per cent, up from Tuesday’s two-and-a-half month low of 1.4443 per cent.
Rising yields caused the dollar to steady against most peers and gain ground on the Japanese currency. Versus the yen it rallied 0.4 per cent to 113.57 yen, with the safe haven yen hurt by the risk-friendlier mood.
That sentiment also helped the Aussie dollar which rose 0.6 per cent from Tuesday’s 32-month low.
Risk-sensitive emerging market stocks and currencies also rebounded.
Gold, despite all the excitement, saw little safe haven demand with the spot price at $1779 an ounce, up 0.3 per cent.