By Sujata Rao and Tom Westbrook LONDON/SYDNEY (Reuters) – European shares opened firmer on Friday, shrugging off weakness in Asia as markets appeared to be slowly accepting the possibility of more COVID-linked activity curbs and an accelerated pace of stimulus tapering by the U.S. Federal Reserve. Wall Street futures were flatlining by 0922 GMT, after […]
Equities attempt rebound despite Omicron and Fed tightening bets
By Sujata Rao and Tom Westbrook
LONDON/SYDNEY (Reuters) – European shares opened firmer on Friday, shrugging off weakness in Asia as markets appeared to be slowly accepting the possibility of more COVID-linked activity curbs and an accelerated pace of stimulus tapering by the U.S. Federal Reserve.
Wall Street futures were flatlining by 0922 GMT, after early big falls triggered by news that Chinese ride-hailing giant Didi will move its stock market listing from New York to Hong Kong.
Global markets have had a rough week, but more volatility may be ahead with 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 recently.
Despite those concerns, European shares rose, led by a 1% rise in Germany while a pan-European benchmark rebounded half a percent. Wall Street enjoyed a bounceback on Thursday, lifted by bargain hunting, especially in the beaten-down airlines and travel sectors.
European travel stocks gained more than 2% despite fresh curbs in Germany and elsewhere to prevent the spread of the new Omicron COVID variant. Oil stocks rose, too, on the prospect of less future supply from OPEC+ producers, who are worried Omicron could dampen demand..
“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.
S&P 500 futures recovered to around flat after trading 0.5% lower earlier, though the tech-sensitive Nasdaq was still down 0.2%.
The mood has improved somewhat since the Asian session which saw an index of shares ex-Japan tumbling 0.4% and Hong Kong tech shares at a two-month lows.
News of Didi’s New York de-listing, while not unexpected, worsened the mood, especially after another Asian ride hailing titan Grab fell 20% on its Nasdaq debut.
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.
“Delistings starting to happen gives some jitters over the uncertainty as to how this impacts on the broader U.S.-China picture,” said Bank of Singapore analyst Moh Siong Sim.
Markets worldwide have seen massive swings this week. CBOE’s volatility index, dubbed Wall Street’s “fear gauge” was headed for a slight fall, after last week notching up its sharpest one-week leap since February 2020. Bond and currency volatility too has surged.
While on Friday all three measures eased, MSCI’s global index is on track for a third week in the red.
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 15 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 1.4410% on Friday, down 4.4 bps this week.
“Just about everyone at the Fed now says tapering needs to be accelerated and rate hikes happen far sooner than we had thought,” said Rabobank global strategist Michael Every.
“The curve flattening we see speaks volumes on that.”
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 in currency markets, the Turkish lira fell another 0.9%, bringing week-to-date losses to more than 12%, after data showed annual inflation at 21%
Finally, oil prices steadied, with Brent crude futures at $70.89 per barrel. But they are on course for a 2.5% weekly fall and are 18% below three-year peaks hit in October. [O/R]
(This story corrects para 14 to make clear that sharpest rise in VIX index since Feb 2020 was last week not this week, no other changes to text.)
(Reporting by Tom Westbrook; Editing by Sam Holmes and Kim Coghill)