Hope rally turns choppy as hot U.S. inflation looms
Stocks rose in choppy trade on
Thursday as worries about the economic impact of the Omicron coronavirus
variant ebbed but increasing caution ahead of U.S. inflation data capped other
risk assets such as oil and the Australian dollar.
Bonds were nursing losses since a
brighter virus outlook leaves a clearer path to higher rates. Traders' focus
was turned to the release of inflation data on Friday and a Federal Reserve
meeting next week for indications on hike timing.
MSCI's broadest index of
Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.5% to a two-week high.
Japan's Nikkei (.N225) was steady, having gained 3.5% in the previous two
sessions.
S&P 500 futures were steady
after a 0.3% rise in the cash index overnight carried it to within 1% of a new
record high.
"Volatility remains elevated as
the drip of news around Omicron continues," said analysts at ANZ Bank, and
beyond it looms an expectation of higher U.S. interest rates in 2022.
"An acceleration in the pace of
tapering by the Fed is almost being treated as a foregone conclusion. But a
strong number could ramp up expectations of a hike in Q2 next year."
On Wednesday, BioNTech and Pfizer
(PFE.N) said a three-shot course of their COVID-19 vaccine was able to neutralise
the Omicron variant in a laboratory test.
Market sentiment has also recovered
with other pieces of preliminary data suggesting Omicron is less severe than
first feared, though offsetting that has been the imposition of tougher
restrictions in England to curb Omicron's spread.
The Australian dollar is up 2.6% in
three sessions and flat at $0.7166 in early trade on Thursday.
Brent crude has added $10 a barrel
from last week's three-and-a-half-month low and was steady at $75.82.
China's yuan held at 6.3458 per
dollar after hitting a three-and-a-half year high of 6.3438 on Wednesday, with
a move to ease monetary policy from next week seen supporting the Chinese
economy.
The pace of factory gate price rises
in China slowed last month, data showed on Thursday, with the annual pace at a
still whopping 12.9%, while inflation picked up to 2.3% year-on-year.
INFLATION AWAITED
The main scheduled event of the week
is Friday's U.S. inflation data, seen as a prelude to the Fed's December
meeting next week.
Fed funds futures are priced for
rates to lift-off next May and on Wednesday two-year Treasury yields touched
their highest since March 2020 at 0.7140%. They were steady at 0.6955% on
Thursday and 10-year yields held at 1.5332% after a 4.6-basis-point jump on
Wednesday.
Economists expect annual headline
U.S. inflation to have hit 6.8% last month, though previous readings have surprised
on the upside.
"A 7 as the big figure may be
good for the dollar bulls and get 2-year Treasury yields pumping higher,"
said Chris Weston, head of research at broker Pepperstone.
"But I think we need a steeper
U.S. Treasury yield curve to convince us about better growth in 2022."
The Wednesday moves weren't enough
to support the dollar, which slipped sharply on the euro to trade at $1.1333 by
Thursday morning.
Elsewhere in currency trade the yen
has edged below its 50-day moving average to 113.76 per dollar. Sterling fell
to a one-year low of $1.31615 overnight with the announcement of the tighter
COVID-19 rules.
The U.S. dollar index hovered at
96.029.
It had recovered slightly to $1.3197
on Thursday. Gold was steady at $1,783 and ounce and bitcoin looks to have
found a floor around $50,000. Source: Reuters