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London — World shares extended their bright start to 2022 as markets from Europe to Asia shrugged off worries that the Omicron coronavirus variant could choke the global economic recovery, while the dollar rose after US bond yields jumped on Tuesday.
The Euro Stoxx 600 index gained as much as 0.9% to hit a record of 494.55 points, topping its previous high scaled a day earlier. Indices in Germany, France and Britain rose between 0.7% and 1.3%.
Travel and leisure stocks jumped more than 3%, with Ryanair adding 10% and British Airways owner IAG gaining more than 12%, reflecting expectations that Omicron’s impact on the industry will be less severe than initially feared.
“As far as markets are concerned Omicron is in the rear-view mirror,” said Colin Asher, senior economist at Mizuho. “The main focus was on a collapse in demand and now because demand has recovered so quickly, the focus is more on the supply ... it will prolong supply chain delays and push prices higher rather than push activity down.”
Wall Street was also set for gains after closing a day earlier at record highs, with e-mini futures for the S&P 500 index 0.4% higher.
The US dollar rose to its highest since 2017 against the Japanese yen after US treasury yields jumped on Monday as traders bet on an early Federal Reserve interest rate hike to tame fast-rising inflation. Eurozone bond yields held steady near their highest levels in about two months.
In a sign that economies may weather the spread of Omicron, factory activity in Asia and Europe grew in December, suggesting the direct hit from the variant on output has been subdued.
Asian stocks were on the front foot after Wall Street’s record highs on its first trading day of 2022, with MSCI’s gauge of Asia Pacific stocks outside Japan up 0.5%.
Analysts said the gains for stocks reflect optimism over prospects for the US economy. “We are firmly of the view the US is seeing boom conditions and a very tight labour market, which will boost household incomes,” said John Milroy, an Ord Minnett adviser in Sydney.
Major Wall Street indices closed at record highs on Monday, with Apple becoming the first company to reach a $3-trillion market value. The tech giant’s market capitalisation is now well above the combined value of the blue chips listed on London’s FTSE 100.
The S&P index surged nearly 28% last year, driving MSCI’s 50-country index of world stocks to its third consecutive year of double-digit gains. The index was up 0.3% on the day.
Benchmark US 10-year yields leapt 12.5 basis points on Monday to touch 1.6420% for the first time since November 24, as investors bet on a series of interest rate raises this year to combat rising inflation. Money markets have fully priced in a first US rate increase by May, and two more by the end of 2022.
That pushed the dollar to as high as ¥115.82 for the first time in four years. The dollar index, which measures its performance against the yen and five other major currencies, held close to the one-week high of 96.328 reached a day earlier. It was last up 0.2%.
The Turkish lira slid as much as 4% against the dollar as Turkey girded for even higher inflation after touching a 19-year peak. Last year the lira weakened 44%.
Commodity markets also were back in the swing of things. Brent crude futures were up 0.8% at $79.64 a barrel at 1136 GMT, as investors embraced expectations that major oil producers will confirm a plan to add supply.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.