Asian stocks, oil price suffers as Omicron spreads

A man walks past a listing board at a brokerage house in Tokyo, Japan on February 26, 2021. REUTERS / Kim Kyung-Hoon

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  • Asian stock markets:
  • Nikkei, S&P 500 futures fall 0.7% in early trading
  • Fed hawks talk about interest rate hikes in March, flattening the yield curve
  • The dollar nears peaks for the year, the euro is struggling
  • Oil prices are falling due to concerns

SYDNEY, December 20 (Reuters) – Asian stock markets fell and oil prices fell on Monday as rising Omicron cases triggered tighter restrictions in Europe and threatened to drag the global economy into the new year.

A seasonal lack of liquidity gave a bumpy start and S&P 500 futures led with a fall of 0.7%, while Nasdaq futures fell 0.6%.

MSCI’s broadest index for Asia-Pacific equities outside Japan (.MIAPJ0000PUS) fell 0.4% and Japanese Nikkei (.N225) 0.7%.

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The proliferation of Omicron led the Netherlands to lock in on Sunday, putting pressure on others to follow, even though the United States appeared to remain open. read more

“Omicron is set to be the Grinch that stole Europe’s Christmas,” said Tapas Strickland, CFO of NAB. “With Omicron cases doubling every 1.5-3 days, the potential for hospital systems to be overwhelmed even with effective vaccines remains.”

While coronavirus restrictions overshadow the outlook for economic growth, they also risk keeping inflation high and making central banks even more hawkish.

It was noteworthy that Federal Reserve officials openly talked about raising interest rates as soon as March and about starting to go down in the central bank’s balance sheet by mid-2022. Read more

It’s even more drastic than suggested by futures, which had been far ahead of the Fed’s intentions until now. The market has only priced in a 40% chance of a rise in March, with June still the preferred month of upswing.

Such a hawkish chatter from the Fed is an important reason why long-term government interest rates fell last week when the short-term rise. This meant that the two-10-year curve was close to the flattest since the end of 2020, which reflects the risk that tighter policies will lead to a recession.

BofA economists see this risk as a reason to be bearish on equities, although their latest survey among fund managers found that only 6% expected recession next year and only 13% were underweight equities. Most are still overweight technology with “long technology” still seen as the most crowded trade.

They also noted that for 2021, the winners had been oil with a gain of 48%, REITs with 42%, Nasdaq with 25% and banks with 21%. Losers included biotechnology with a fall of 22%, while China also lost 22%, silver 19% and JGBs 10%.

It was the best year for commodities since 1996, and the worst for global government bonds since 1949.

Early Monday, interest rates on US 10-year banknotes were down 1.38% and well below the 2021 high of 1.776%.

The Fed’s hawkish turn combined with safe-haven flows underpinned the US dollar index near its best for the year of 96,665, after a jump of 0.7% on Friday.

The euro weakened to $ 1.1241, after falling 0.8% on Friday to threaten the year’s low of $ 1.1184. The Japanese yen has its own safe harbor status and kept stable at 113.63 per dollar.

Sterling was down to $ 1.3228 when Omicron worries erased all gains made after the Bank of England’s surprise rate hike last week.

Gold looked firmer at $ 1,801 an ounce, after breaking a five-week losing streak last week when stocks fell.

Oil prices fell due to concerns that the proliferation of the Omicron variant would reduce fuel demand and signs of better supply.

Brent fell $ 1.56 to $ 71.96 per barrel, while U.S. crude oil lost $ 1.43 to $ 69.43 per barrel.

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Edited by Sam Holmes

Our standards: Thomson Reuters Trust Principles.

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