Stocks cement gains as Omicron fears ease

Stock markets in Europe and Asia have cemented gains in light holiday trade, while the safe-haven dollar eased on signs the Omicron variant would not significantly derail global economic growth.

The greenback was set for its worst week in four months while other risk-friendly assets from bitcoin to the Australian dollar held onto their recent gains, buoyed by ebbing concerns over the severity of the new COVID-19 variant.

A top European equity benchmark on Friday hovered around one month highs after a week of gains and the MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.1 per cent, after a record closing high for S&P 500 on Thursday.

Even though it is highly infectious, studies have shown how Omicron is less severe than the Delta strain, fuelling optimism about a limited fallout from new restrictions, and setting the MSCI world equity index for a 2 per cent weekly gain.

“The most popular motivation (for the rally) is the growing perception that Omicron is less lethal. This certainty helped risk appetite return, but self-fulfilling expectations of Christmas rallies and reduced liquidity also came in play,” said Giuseppe Sersale, fund manager at Anthilia in Milan.

“I still think the news on Omicron is good, but not as good as the market is taking it. So it really depends on how much the contagions will fly,” he added.

US equity and Treasury markets will be closed on Friday for the holiday. In Europe, stock markets in several countries including Germany, Italy and Switzerland were also shut, while bourses in London and France trade only half day.

Stephane Ekolo, strategist at Tradition in London, said he would not read too much in market moves going into year end given the thin volumes, noting how the upward trend was clouded by uncertainties ranging from inflation to central bank policy.

The US Federal Reserve said last week it would accelerate tapering of its massive bond buying program and paved the way for three interest rate hikes in 2022, but this did not roil markets as it did in 2013 when the Fed tapered its post financial crisis quantitative easing.

“As it looks like neither tapering nor the Omicron variant will have too much of an effect on the economy, globally, money is flowing into equities,” said Steven Leung executive director for institutional sales at UOB Kay Hian in Hong Kong.

Some markets, however, fell on tighter measures to contain the spread of Omicron. Chinese blue chips slipped 0.6 per cent a day after rising infections in the northwestern city of Xi’an resulted in a lockdown of its 13 million residents.

In currency markets, the dollar index, which measures the greenback against six major peers was at 95.96, down 0.1 per cent on the day and on course for a 0.7 per cent drop from last Friday’s close – its worst week since late August.

The dollar has lost ground on most currencies, barring the yen, another safe haven. The Japanese currency was at 114.37 per dollar on Friday and 82.82 against the Australian dollar, almost the same level as in late November when news about the Omicron variant first emerged.

The Aussie was at $US0.7243, just off its five-week peak of $US0.7252 hit overnight, and the pound which struck a month high of $US1.3437 on Thursday, was last at $US1.341, up 1.4 per cent on the week. The euro added 0.1 per cent at $US1.134.

The yield on benchmark 10-year Treasury notes was 1.4926 at their Thursday close having touched more than a one-week high of 1.5010 per cent earlier in the session as investors sold government bonds as part of the risk-on mood.

In line with the same trend, bitcoin rose 4.5 per cent on Thursday, its best day in nearly two weeks and held onto those gains on Friday in Europe, trading just above $US51,000, up 0.6 per cent.

Trading patterns in the world’s largest cryptocurrency are gradually becoming more aligned with risk-on and risk-off moves in traditional markets as institutional investors’ influence grows.

Oil prices fell in light holiday trade, snapping a three-day rally. Brent crude futures slid 1.2 per cent to $US75.94 a barrel. US markets are closed.

The weak dollar helped spot gold hit its highest in more than one month in Asian trading before paring gains. It was last at $US1807.9 per ounce, flat on the day but set for a weekly gain of 0.6 per cent.