‘Santa Claus’ rally brings out the bulls as Omicron fears ebb

By Lawrence White

LONDON (Reuters) – Global shares, bond yields and riskier currencies all hit recent highs on Thursday as investor confidence grew on signs that the Omicron variant of COVID-19 might be less severe than feared, as well as robust U.S. economic data.

The STOXX index of Europe’s 600 largest shares rose 0.4%, hitting a two-week high after earlier gains in Asian markets, and euro zone government bond yields climbed in a sign of falling demand for the safe-haven assets.

The rise of risk-on investments ahead of Christmas, dubbed a “Santa Claus rally” by traders, also nudged gold and oil higher.

Bullish investors likewise left the dollar near a one-week low and lifted riskier currencies such as the Australian dollar and British pound, with the latter hitting a one-month high of $1.34235.

It put markets on course for a third successive day of gains as they recovered from a jolt on Monday when worries about the new coronavirus variant pushed investors to safe-haven assets like the greenback.

“The recent health data from the UK and other places around the world indicate that the worst case is unlikely: even though (Omicron) transmission rates are reportedly higher, this variant seems less virulent and less prone to cause serious illnesses or death,” said David Chao, global market strategist Asia Pacific at Invesco.

The risk of needing to stay in hospital for patients with the Omicron variant is 40-45% lower than for patients with the Delta variant, according to research by London’s Imperial College published on Wednesday.

European government bond yields continued to tick up as the trickle of risk sentiment flowing back into the market reduced the need for safe-haven debt. Germany’s 10-year Bund yields hit -0.284%, their highest since late November.

Italian 10-year bonds likewise hit a one-month high in early trading..

Yields move inversely to price.

IMPROVING CONFIDENCE

U.S. stocks looked set to continue Wednesday’s rally, with S&P 500 and Dow futures up 0.25% after data showed consumer confidence improved further in December, and the White House said it was resuming talks on a massive social spending and climate change bill with holdout Senator Joe Manchin. [.N]

That put the benchmark S&P 500 index in sight of record highs after Wednesday’s strong performance and a year in which it has gained 25% on the back of a resilient economic performance.

The U.S. rally contrasts with Asian stocks, where jitters sparked by sweeping regulatory changes in China earlier this year roiled shares in industries from technology to property and depressed regional indices.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8%, after hitting this year’s low on Monday.

In currency markets, the dollar index dropped to 96.086, albeit most analysts expect it to strengthen in the weeks ahead as the Federal Reserve begins to tighten monetary policy faster than other central banks.

The dollar’s recent losses have been fairly broad-based; the euro has gained for the last four sessions, and the Australian dollar – often seen as proxy for risk appetite – is up 1.2% on the week.

The yield on benchmark 10-year Treasury notes was last at 1.4618%, in the middle of its recent range.

Oil prices were broadly stable on Thursday as signs the worst effects of the Omicron coronavirus variant might be containable were countered by new travel curbs amid surging case numbers.

Brent crude futures were up 0.53% at $75.69 a barrel at 1130 GMT, after a 1.8% gain in the previous session.

U.S. West Texas Intermediate (WTI) crude futures were up 33 cents, or 0.44%, at $73.08 a barrel after jumping 2.3% in the previous session.

Spot gold rose 0.07% to 1,804 an ounce in thin but supportive trading, helped by the softer dollar. [GOL/]

(Reporting by Alun John and Lawrence White; Editing by Kenneth Maxwell, Ana Nicolaci da Costa and Pravin Char)

By Lawrence White

LONDON (Reuters) – Global shares, bond yields and riskier currencies all hit recent highs on Thursday as investor confidence grew on signs that the Omicron variant of COVID-19 might be less severe than feared, as well as robust U.S. economic data.

The STOXX index of Europe’s 600 largest shares rose 0.4%, hitting a two-week high after earlier gains in Asian markets, and euro zone government bond yields climbed in a sign of falling demand for the safe-haven assets.

The rise of risk-on investments ahead of Christmas, dubbed a “Santa Claus rally” by traders, also nudged gold and oil higher.

Bullish investors likewise left the dollar near a one-week low and lifted riskier currencies such as the Australian dollar and British pound, with the latter hitting a one-month high of $1.34235.

It put markets on course for a third successive day of gains as they recovered from a jolt on Monday when worries about the new coronavirus variant pushed investors to safe-haven assets like the greenback.

“The recent health data from the UK and other places around the world indicate that the worst case is unlikely: even though (Omicron) transmission rates are reportedly higher, this variant seems less virulent and less prone to cause serious illnesses or death,” said David Chao, global market strategist Asia Pacific at Invesco.

The risk of needing to stay in hospital for patients with the Omicron variant is 40-45% lower than for patients with the Delta variant, according to research by London’s Imperial College published on Wednesday.

European government bond yields continued to tick up as the trickle of risk sentiment flowing back into the market reduced the need for safe-haven debt. Germany’s 10-year Bund yields hit -0.284%, their highest since late November.

Italian 10-year bonds likewise hit a one-month high in early trading..

Yields move inversely to price.

IMPROVING CONFIDENCE

U.S. stocks looked set to continue Wednesday’s rally, with S&P 500 and Dow futures up 0.25% after data showed consumer confidence improved further in December, and the White House said it was resuming talks on a massive social spending and climate change bill with holdout Senator Joe Manchin. [.N]

That put the benchmark S&P 500 index in sight of record highs after Wednesday’s strong performance and a year in which it has gained 25% on the back of a resilient economic performance.

The U.S. rally contrasts with Asian stocks, where jitters sparked by sweeping regulatory changes in China earlier this year roiled shares in industries from technology to property and depressed regional indices.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8%, after hitting this year’s low on Monday.

In currency markets, the dollar index dropped to 96.086, albeit most analysts expect it to strengthen in the weeks ahead as the Federal Reserve begins to tighten monetary policy faster than other central banks.

The dollar’s recent losses have been fairly broad-based; the euro has gained for the last four sessions, and the Australian dollar – often seen as proxy for risk appetite – is up 1.2% on the week.

The yield on benchmark 10-year Treasury notes was last at 1.4618%, in the middle of its recent range.

Oil prices were broadly stable on Thursday as signs the worst effects of the Omicron coronavirus variant might be containable were countered by new travel curbs amid surging case numbers.

Brent crude futures were up 0.53% at $75.69 a barrel at 1130 GMT, after a 1.8% gain in the previous session.

U.S. West Texas Intermediate (WTI) crude futures were up 33 cents, or 0.44%, at $73.08 a barrel after jumping 2.3% in the previous session.

Spot gold rose 0.07% to 1,804 an ounce in thin but supportive trading, helped by the softer dollar. [GOL/]

(Reporting by Alun John and Lawrence White; Editing by Kenneth Maxwell, Ana Nicolaci da Costa and Pravin Char)