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Stocks and oil prices rise after Omicron and Powell remarks drive slump

Asian equities rose and oil prices rebounded on Wednesday after a punishing session in which the economic impact of the Omicron coronavirus variant and hawkish comments from the chair of the US Federal Reserve weighed on global markets.

Most stock markets in Asia on Wednesday pared losses from the previous session, with Hong Kong’s Hang Seng index up 1.4 per cent and Japan’s Topix rising 0.7 per cent.

But the benchmarks are down 1 and 2 per cent this week, respectively, with analysts warning that Omicron could further disrupt global growth just as many economies appeared to be recovering from the impact of the Delta variant.

The bounceback in Asia followed a rout on Tuesday, which came in response to comments from the chief executive of vaccine maker Moderna, who told the Financial Times in an interview that existing jabs would be much less effective in dealing with Omicron.

Falls for global equities were compounded when Fed chair Jay Powell signalled that he would support faster monetary tightening by the US central bank to combat soaring inflation, despite the economic threat posed by the new variant.

The S&P 500 closed down almost 2 per cent, while the tech-focused Nasdaq dropped 1.6 per cent. Powell’s comments also pushed up yields on shorter-dated Treasuries, which follow interest rate expectations, and boosted those on longer-dated yields, which track growth and inflation expectations. Yields move inversely to bond prices.

“The emergence of the Omicron variant of the coronavirus poses new risks to the global economic growth and inflation outlook”, said Madhavi Bokil, senior vice-president of credit strategy and research at Moody’s.

Bokil added that while information on Omicron and policy reactions had not yet shifted the rating agency’s growth forecasts, travel restrictions “will likely increase over the coming weeks” as governments attempt to slow the variant’s spread.

Oil prices had also recovered from sharp falls, with Brent crude, the international benchmark, up 2.7 per cent at $71.12 a barrel after falling almost 4 per cent on Tuesday. West Texas Intermediate, the US marker, rose 2.6 per cent on the day to $67.91, as investor focus shifted to the Opec+ meeting later this week, when the group will decide whether to halt plans to increase supply.

Futures markets pointed to a gain of almost 1 per cent for the S&P 500 when trading begins on Wall Street, while the FTSE 100 was expected to rise 0.6 per cent.

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