Picture: 123RF/BLUE BAY
Picture: 123RF/BLUE BAY

London — A rebound in market sentiment continued in early European trading on Wednesday, with world shares set for their biggest two-day jump since November last year as investors became less concerned about the Omicron variant.

World shares plunged at the end of last month when the discovery of the new Covid-19 strain spooked investors, but sentiment has rebounded sharply this week in the absence of indications that the variant would derail the economic recovery.

The Stoxx 600 posted the biggest daily jump since November 2020 on Tuesday and, despite European stock index futures initially being lower on Wednesday, the gauge was up 0.4% at 9.01am GMT, set for its third consecutive day of gains.

The MSCI world equity index, which tracks shares in 50 countries, was up 0.2% — its highest since November 26, when Omicron fears first hit markets.

“To be honest, it was more the absence of bad news rather than any concrete good news helping to drive sentiment,” Deutsche Bank strategist Jim Reid said in a note to clients.

“Every day that passes without a wave of severe cases driven by Omicron is offering more hope that this won’t be the curveball to throw the [global] recovery off course.’

British drugmaker GSK said on Tuesday its antibody-based Covid-19-19 therapy with US partner Vir Biotechnology was effective against all mutations of Omicron.

But a study in SA suggested that the Pfizer vaccine may only partly protect against Omicron.

“Clearly in the very short term uncertainty has risen over the Omicron virus ... but overall at this stage we do not believe it will derail the macro picture in the medium term,” said Jeremy Gatto, multi-asset portfolio manager at Unigestion.

Outlook for rates

Oil prices eased as investors waited for more information about the extent to which the variant would affect demand. At 9.11am GMT, Brent crude futures were down 0.4% and US West Texas Intermediate was 0.5% lower on the day.

The dollar index was steady around 96.233, while the euro was up 0.1% at $1.1283.

The euro-dollar pair has struggled to recover from the 2021 lows it reached in November, hurt by expectations that the US Federal Reserve will tighten monetary policy more quickly than the dovish European Central Bank.

Last week, Fed Chair Jerome Powell said it might be time to stop seeing inflation as transitory, suggesting the central bank could speed up tapering.

“The market is pricing in two to three [rate] hikes next year now. We think that pricing is too optimistic. We believe that the Fed will actually be slower to deliver on these rate hikes,” said Gatto, adding that  would be supportive for equities.

The US 10-year Treasury yield, which recorded its biggest weekly drop since June 2020 last week due to a combination of Powell’s hawkish comments and fears about Omicron, was slightly lower on Wednesday at 1.4597%.

US inflation data is due on Friday.

Meanwhile, shares in China’s Evergrande Group hit a record low after a missed debt payment deadline put the developer at risk of becoming the country’s biggest defaulter. The news had limited global market impact though, because it is already “well-priced” by the market, Gatto said.

US President Joe Biden warned his Russian counterpart Vladimir Putin in a virtual meeting that the West would impose “strong economic and other measures” on Russia if it invaded Ukraine, while Putin demanded guarantees that Nato wouldn’t expand further eastward.

Reuters

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