LDN - Business

Equity rally wavers as Omicron keeps investors humble

[December 03, 2021] By Sujata Rao and Dhara Ranasinghe

LONDON (Reuters) -Stocks markets wavered on Friday, with European shares just holding onto gains as the possibility of more COVID-linked activity curbs and an accelerated pace of stimulus tapering by the U.S. Federal Reserve kept investors on edge.

Wall Street futures were a tad weaker and Asian tech stocks took a hit from news that Chinese ride-hailing giant Didi will move its stock market listing from New York to Hong Kong.

European shares could not make up their minds, flitting between positive and negative territory. They were last trading higher, while Japan's Nikkei reversed earlier falls to close 1% higher. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4%.

Global markets have had a rough week and volatility was expected to remain in place as markets navigate the implications of the new Omicron coronavirus variant and what that means for growth, inflation and ultimately central bank policy.

"At the end of the day, we need to wait for the next 10 days to see what happens with the Omicron virus before making any move," said Francois Savary, CIO at Swiss wealth management firm Prime Partners. "Markets have been dealt a blow and it will take time to recover."

Omicron has gained a foothold in Asia, Africa, the Americas, the Middle East and Europe and has reached seven of the nine provinces of South Africa, where it was first identified. Many governments have tightened travel rules to keep the variant out.

The broad European STOXX index is set to end the week a touch higher after slumping 4.5% last week in the biggest weekly decline since Oct 2020. The S&P 500 is set to end the week 0.4% lower after a 2.2% tumble last week.

PAYROLLS, DIDI

The immediate focus turned to the release of U.S. monthly payrolls data later in the session. These are expected to show 550,000 jobs were created last month, continuing the robust job market expansion hinted at by weekly figures.

A figure close to that should confirm the Federal Reserve will accelerate the pace of unwinding its bond purchases, as Chair Jerome Powell suggested this week.

"The market is pricing (in) some tightening in the United States but we believe the real economy is less sensitive to the pricing ... household balance sheets are rock-solid," said Raphaël Gallardo, an economist at Carmignac.

European Central Bank President Christine Lagarde said the ECB may set policy for a relatively short period at this month's meeting given heightened uncertainty but should not delay a decision as markets need direction.

News of Didi's New York de-listing, while not unexpected, weighed on sentiment, especially after another Asian ride hailing titan Grab fell 20% on its Nasdaq debut.

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The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 5, 2018. REUTERS/Staff/File Photo

Hong Kong tech shares fell to a two-month lows.

Shares in Japanese conglomerate SoftBank, exposed to both stocks, slumped 3% to a 14-month low - with added disappointment from a U.S. regulatory challenge to a takeover of SoftBank-owned chipmaker Arm by Nvidia.

FLATTER AND FLATTER

A major focus for markets has been the flattening of U.S. Treasury yield curves.

Fed boss Powell began the shift by saying the bank will discuss a faster tapering at its meeting this month. That sparked a renewal of bets on near-term hikes which could curb future growth and inflation.

The gap between two-year and 10-year Treasury yields has narrowed more than 16 basis points (bps) this week, the sharpest curve flattening since June 2020. The flattening, since the start of October, amounts to almost 40 bps.

Ten-year yields held at around 1.43% on Friday, down around 5 bps this week.

Expectations of a tapering step-up and of a Fed rate hike next June lifted the dollar index, putting it on track for a sixth straight week of gain.

Elsewhere, Turkey's lira edged near to its record low. That triggered central bank intervention selling dollars, after ratings agency Fitch revised Turkey's outlook to "negative" from "stable" over risks created by recent monetary policy easing.

And oil prices climbed after the producer group OPEC+ said it could review its production hike policy at short notice if oil demand collapsed due to a rising number of lockdowns, while Brent was on course for a sixth week of declines.

Brent crude futures were last up 2.5% at $71.40 per barrel. [O/R]

(Additional reporting by Tom Westbrook in Sydney; Editing by Alison Williams)

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