Asian stocks, oil prices suffer from Omicron spread

A man walks past a stock quote chart at a brokerage house in Tokyo, Japan on February 26, 2021. REUTERS / Kim Kyung-Hoon

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  • Asian Stock Markets:
  • Nikkei and S&P 500 futures drop 0.7% in early trade
  • Fed hawks talk about March rate hike and yield curve flattening
  • The dollar close to the highs of the year, the euro struggles
  • Oil prices skid amid demand concerns

SYDNEY, Dec.20 (Reuters) – Asian stock markets fell and oil prices fell on Monday as rising Omicron cases triggered tighter restrictions in Europe and threatened to slow the global economy in the new Year.

A seasonal lack of liquidity led to a chaotic start and S&P 500 futures led the way with a 0.7% drop, while Nasdaq futures fell 0.6%.

The largest MSCI Asia-Pacific stock index outside of Japan (.MIAPJ0000PUS) slipped 0.4% and the Japanese Nikkei (.N225) slipped 0.7%.

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Omicron’s spread saw the Netherlands lock in on Sunday and press others to follow, although the United States appeared ready to stay open. Read more

“Omicron is about to be the Grinch who stole Christmas from Europe,” said Tapas Strickland, director of economics at NAB. “With Omicron cases doubling every 1.5 to 3 days, the potential for hospital systems to be overwhelmed even with effective vaccines remains. “

As coronavirus restrictions cloud the outlook for economic growth, they also risk keeping inflation high and making central banks even more hawkish.

It should be noted that Federal Reserve officials were openly talking about raising rates as early as March and starting to degrade the central bank’s balance sheet in mid-2022. Read more

This is even more drastic than implied by the futures contracts, which have so far been well ahead of the Fed’s intentions. The market only assessed a 40% chance of a hike in March, with June still being the preferred month for take-off.

Such hawkish Fed chatter is one of the main reasons long-term Treasury yields fell last week as the short-term rose. This has left the two to ten year curve near its flattest level since late 2020, reflecting the policy of tightening risk that will lead to a recession.

BofA economists see this risk as a reason for bearishness in equities, although their latest survey of fund managers found only a 6% recession expected next year and only 13% of equities under. -weighted. Most remain overweighted in tech, with “long tech” still considered the most congested trade.

They also noted that for 2021, the winners were oil with a gain of 48%, REITs with 42%, Nasdaq with 25% and banks with 21%. Losers included biotech with a 22% drop, while China also lost 22%, silver 19% and JGBs 10%.

It was the best year for commodities since 1996 and the worst for global government bonds since 1949.

As of early Monday, US 10-year bond yields were down to 1.38% and well below their 2021 high of 1.776%.

The Fed’s hawkish turn combined with safe haven flows supported the US dollar index near its best for the year at 96.665, after jumping 0.7% on Friday.

The euro was languishing at $ 1.1241, after losing 0.8% on Friday to threaten a year-low of $ 1.184. The Japanese yen has its own safe haven status and has held steady at 113.63 per dollar.

The British pound was down to $ 1.3228 as Omicron concerns wiped out any gains made following the Bank of England’s surprise rate hike last week.

Gold looked firmer at $ 1,801 an ounce, after breaking a five-week losing streak last week as stocks slipped.

Oil prices have come down on fears that the spread of the Omicron variant will dampen fuel demand and signs of improving supply.

Brent fell $ 1.56 to $ 71.96 per barrel, while U.S. crude fell $ 1.43 to $ 69.43 per barrel.

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Editing by Sam Holmes

Our standards: Thomson Reuters Trust Principles.

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Felix J. Dixon