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European and Asian shares rise after Omicron and Powell remarks drive slump

European and 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.

Europe’s Stoxx 600 index rose 0.7 per cent in early dealings, after closing down 0.9 per cent in the previous session. The UK’s FTSE 100 share gauge was up 1 per cent, having closed down 0.7 per cent on Tuesday. In Asian markets, Hong Kong’s Hang Seng rose 0.8 per cent while Japan’s Topix index rose 0.4 per cent.

Futures contracts tracking Wall Street’s S&P 500 share gauge were up almost 1 per cent. Those tracking the more technology-focused Nasdaq 100 index were up 1.3 per cent.

The rebound came after markets dropped on Tuesday, after the chief executive of vaccine maker Moderna used an interview with the Financial Times to predict that existing jabs would be much less effective in dealing with Omicron than earlier strains of coronavirus.

Falls for 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 US government bonds, which follow interest rate expectations. Yields move inversely to bond prices.

Luca Paolini, chief strategist at Pictet Asset Management, said the emergence of Omicron had probably been a trigger for asset managers to take profits after the S&P and the Stoxx hit records earlier this month.

“We’re not where we were in April 2020,” he said. “We know a lot more about this virus now and society is more prepared to deal with it.” “This was an excuse for those who made a lot of money during the year to lock in some profits.”

The yield on the US 10-year benchmark Treasury note was up by about 0.03 percentage points to 1.47 per cent in the European morning on Wednesday.

Analysts are still warning that Omicron could further disrupt global growth, just as many economies appeared to be recovering from the impact of the Delta variant.

“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 also recovered from sharp falls in the previous session. Brent crude, the international benchmark, was up 3.9 per cent to $71.94 a barrel after falling almost 4 per cent on Tuesday. West Texas Intermediate, the US marker, rose 3.7 per cent on the day to $68.64, as investor focus shifted to the Opec+ meeting later this week, when the group will decide whether to halt plans to increase supply.

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