World shares boosted by Wall Street strength

[December 28, 2021]  By Danilo Masoni and Alun John

MILAN/HONG KONG (Reuters) - Shares in Europe and Asia inched up on Tuesday, helped by another record-setting day on Wall Street and after Britain and France held off from imposing tougher COVID-19 restrictions before year-end.

A variety of asset classes from oil to equities are now near or above recent highs, having walked back losses from late November when the Omicron variant of COVID-19 first emerged and sent investors scurrying for safe havens.

As the worst fears of the impact of the new variant have subsided, investors have been returning to risk assets.

The MSCI world equities index rose 0.2% by 0908 GMT, and was striking distance from a record high hit last month, as markets in Asia and Europe rose following the 69th all-time record high close this year for the benchmark S&P 500 on Monday.

Europe's STOXX 600 equity benchmark added 0.5% to its highest since Nov. 19, while Japan's Nikkei rose 1.4% to a one-month high and the MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.5%.

"The latest rebound in risky assets was activated last week by new reports confirming that the Omicron coronavirus variant, although more transmissible... leads to fewer hospitalizations and deaths," said Charalambos Pissouros, head of research at Cyprus-based brokerage JFD Group.

"Last week's optimism combined with an empty agenda and thin liquidity this week may have set the stage for the so-called 'Santa rally'," he added.
 

The London bourse was shut for a holiday, reducing activity across the region's equity markets.

China reported 209 new confirmed coronavirus cases for Dec. 27, up from 200 a day earlier, mostly in the northwestern province of Shaanxi, where Xian, the provincial capital, is in lockdown.

In Europe, the British government said England would not get any new COVID-19 restrictions before the end of 2021, while the French government said it would tighten measures, though there will be no curfew for New Year's Eve and schools will reopen as planned in early January.

The MSCI world equities index is up more than 17% so far this year, and heading into 2022 investors are wary of risks stemming from rising price pressures, slowing corporate earnings growth and the likelihood of a rate hike cycle in the U.S..

A woman wearing a protective mask, amid the COVID-19 outbreak, walks past an electronic board displaying Japan and other countries' stock indexes outside a brokerage in Tokyo, Japan, September 21, 2021. REUTERS/Kim Kyung-Hoon

"Money growth will slow in 2022, but the market strongly doubts that the ECB and the Fed are willing to truly tighten financial conditions," said Arne Petimezas, analyst at AFS Group in Amsterdam. "They now face a trade-off between controlling inflation or keeping this party going".

The S&P added 1.4% to end at a record on Monday as strong retail sales underscored economic strength, and the Dow Jones rose 1% and the Nasdaq 100 added 1.6%. Futures on these three indices were up between 0.05 and 0.2%.

Oil cautiously extended gains with prices trading near the previous day's one-month high on hopes that Omicron will have a limited impact on fuel demand.

Brent crude rose 0.1% to $78.66 a barrel and U.S. crude gained 0.2% to $75.68 a barrel.

Meanwhile, the safe-haven yen slipped to a one-month low of 114.94 per dollar and was last little change on the day.

The dollar, also a safe haven, was rangebound, despite a hawkish turn at the Federal Reserve this month that saw policymakers signal three quarter-point rate hikes in 2022.

The dollar index, which measures the currency against six major peers, was flat at 96.06. The pound eased 0.1% but stayed near a five-week high of $1.3445 hit on Monday. The euro was flat at $1.132 and the risk-sensitive Australian dollar also steadied.

Bitcoin fell below $50,000 and was down 2.5%.

In debt markets, 10-year U.S. Treasury yields stayed below Thursday's high of just above 1.5%. Germany's 10-year yield, the benchmark for the euro zone, steadied at -0.242%.

Spot gold rose 0.2% to its highest in over one month at $1,815 an ounce. [GOL/]

(Reporting by Danilo Masoni; Editing by Bernadette Baum)

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