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Asian stocks fall as Omicron spreads, Fed decision approaching

People wearing protective masks, in the midst of the outbreak of coronavirus (COVID-19), are reflected on an electronic board showing Japan’s stock prices outside a brokerage house in Tokyo, Japan, October 5, 2021. REUTERS / Kim Kyung-Hoon

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SYDNEY, Dec. 14 (Reuters) – Asian stocks and oil prices fell on Tuesday as the spread of the Omicron coronavirus variant plunged investors already on the brink of a series of central bank decisions this week, including a central meeting of the Federal Reserve.

MSCI’s broadest index for Asia-Pacific equities outside Japan (.MIAPJ0000PUS) was down 0.46%.

China’s CSI300 index (.CSI300) was also 0.41% lower, after the health authorities in Tianjin discovered the country’s first case of Omicron on the mainland. read more

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The large Chinese manufacturing province of Zhejiang is also battling its first COVID-19 cluster this year, with tens of thousands of quarantined and virus-stricken residents suspending operations. read more

The combination of the financial risks from the Omicron variant and a potentially more hawkish tone from the Fed on Wednesday dampened risk appetite.

“We expected to see an acceleration of the Fed’s downsizing and, of course, that accelerate interest rate hikes, so it’s going to be interesting to see how the market handles that,” said John Milroy, an adviser at Ord Minnett in Sydney.

“I think there are reasons why you can expect to see money go back to cash for a while, in the expectation that the start of 2022 will be a volatile period.”

Hong Kong’s Hang Seng Index (.HSI) was down 1%, South Korea’s KOSPI (.KS11) was 0.4% lower, Japan’s Nikkei stock index (.N225) was down 0.13% and Australian equities (.AXJO ) was 0.31% lower.

On Wednesday, the Fed is expected to signal a faster phase-out of its $ 120 billion-a-month bond buying program in a move to fight high inflation, which could move it one step closer to raising interest rates.

The dollar rose ahead of the upcoming meetings, with investors looking at the possibility that the Fed will start raising interest rates in 2022.

“Volatility will remain high through all (these) decisions by the Fed, ECB and BOE,” said Edward Moya, senior analyst at OANDA.

The European Central Bank, the Bank of England and the Bank of Japan are also meeting this week, and are moving towards normalizing their own monetary policy.

Fear of the Omicron variant of COVID-19 was heightened after British Prime Minister Boris Johnson warned of a “tidal wave” of new cases, and the World Health Organization said it posed a “very high” global risk, with some evidence that it avoids vaccine protection. read more

Oil futures eased as new doubts emerged about the effectiveness of vaccines against the Omicron coronavirus variant, although OPEC predicted in its monthly report that the impact of the variant on fuel demand would be mild.

Brent futures fell 83 cents, or 1.10%, to $ 74.32 a barrel, while US West Texas Intermediate (WTI) oil was 8 cents, or 0.11%, lower at $ 71.21.

The FTSE index (.FTSE) fell 0.83%, while the pan-European STOXX 600 index (.STOXX) lost 0.43% and MSCI’s global stock target (.MIWD00000PUS) fell 0.80%.

The Dow Jones Industrial Average (.DJI) fell 0.89% and the technology-heavy Nasdaq Composite (.IXIC) fell 1.39%.

The dollar index rose 0.27%, with the euro down 0.01% to $ 1.1282, seen vulnerable given expectations that the Fed will tighten policy faster than the ECB.

The US 10-year government interest rate fell on Monday and the yield curve flattened out as traders prepared for a hawkish Fed. read more

The yield on 10-year government bonds was down 6.5 basis points to 1.424% and the 30-year government bond yield fell by 6.7 basis points to 1.817%.

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Reporting by Paulina Duran in Sydney, and Dhara Ranasinghe and Elizabeth Dilts Marshall in New York; Edited by Sam Holmes

Our standards: Thomson Reuters Trust Principles.

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