Stocks edge up ahead of U.S. inflation data, oil hits pre-Omicron highs

[January 12, 2022]  By Carolyn Cohn

LONDON (Reuters) - U.S. stock index futures edged up ahead of U.S. inflation data on Wednesday, building on equity market gains following testimony from U.S. Federal Reserve Chair Jerome Powell in the previous session, while oil hit pre-Omicron highs.

Powell told a congressional hearing on his confirmation for a second term that the economy could weather the COVID-19 surge and was ready for tighter monetary policy, but said it may take several months to make a decision on running down the Fed's $9 trillion balance sheet.

The lack of a faster timetable for rate hikes gave support to riskier assets.

S&P futures gained 0.11%, indicating a stronger open on Wall Street, after the Nasdaq and S&P 500 recorded their best sessions of 2022 on Tuesday. [.N]

Oil is trading at its highest since the highly contagious Omicron COVID-19 variant emerged in late November, as it has not impacted fuel demand the way previous variants did. [O/R]

Brent crude futures rose 0.48% to $84.13 a barrel and U.S. crude futures climbed 0.66% to $81.76 a barrel.

"Omicron is yesterday's story now", said Luca Paolini, chief strategist at Pictet Asset Management.

"The market isn't moving on Omicron but on earnings, Fed and economic data."

MSCI world stocks rose 0.43% to one-week highs. European stocks rose 0.4% and Britain's FTSE 100 climbed 0.68% to one-year highs.

U.S. Dec inflation data is due at 1330 GMT and is expected to hit an almost four-decade high of 7% year-on-year, with core inflation forecast at 5.4%, according to a Reuters poll.

"If we see core inflation below 5%, we'll see the dollar sell off in a flash," said Giles Coghlan, chief currency analyst at HYCM.

The dollar has dropped through its 200-day moving average against a basket of currencies and touched its lowest in nearly two months at 95.533. [FRX/]

It also hit a 2022 low against the euro at $1.1378 and was steady at 115.41 yen.

Though Fed fund futures are predicting nearly four rate hikes this year, a seismic change from a few months ago, longer-term rate expectations haven't budged sharply.

A screen shows Nikkei index after a ceremony marking the end of trading in 2021 at the Tokyo Stock Exchange (TSE) in Tokyo, Japan December 30, 2021. REUTERS/Kim Kyung-Hoon

U.S. interest rate pricing is peaking at 1.5% by the third quarter of 2024, far lower than previous U.S. rate tightening cycles.

"It seems to be a fait accompli that the Fed will hike interest rates quickly, even if inflation comes in a little below expectations," Commerzbank analysts said in a client note.

"In a worst-case scenario, lift-off will not be in March, but in May or June."

Sterling hit two-month highs before easing to $1.3632, as investors see Britain overcoming a wave of COVID-19 cases led by Omicron and have priced in a nearly 80% chance of a Bank of England interest rate hike in February. [GBP/]

Benchmark 10-year Treasury yields were steady at 1.7446% and have pulled back nearly seven basis points from an almost two-year high hit on Monday. [US/]

Germany's 10-year yield slipped to -0.045% after rising as high as -0.014% on Tuesday, nearing positive territory for the first time since May 2019. [EUR/GVD]

MSCI's broadest index of Asia-Pacific shares outside Japan soared 1.6% to a one-and-a-half month high, led by a 5% jump for tech stocks in Hong Kong.[.HK]

Japan's Nikkei rose 1.9%. [.T]

In China, a softer than expected reading on prices has drawn bets on policy easing.

Five-year Chinese government bond futures rose eight ticks to an 18-month high before trimming gains. Yuan gains were also capped. [CNY/]

Safe-haven gold fell 0.30% to $1,800. [GOL/]

Cryptocurrencies were steady with investors comforted that bitcoin's support at $40,000 held this week. Bitcoin was trading at $42,923.

(Additional reporting by Tom Westbrook in Sydney and Saikat Chatterjee, Dhara Ranasinghe and Sujata Rao in London; editing by Kim Coghill, Emelia Sithole-Matarise and Hugh Lawson)
 

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