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US Federal Reserve Board Chairman Jerome Powell listens during his re-nominations hearing of the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill, in Washington on January 11 2022. Picture: REUTERS/BRENDAN SMIALOWSKI
US Federal Reserve Board Chairman Jerome Powell listens during his re-nominations hearing of the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill, in Washington on January 11 2022. Picture: REUTERS/BRENDAN SMIALOWSKI

London — Oil hit its highest since the Omicron outbreak, world stocks rose to one-week peaks and the dollar plumbed to six-week lows on Wednesday after US Federal Reserve chair Jerome Powell sounded less bullish on rates than expected in testimony to Congress.

Powell told a congressional hearing on his confirmation for a second term at the helm of the central bank that the economy could weather the Covid-19 surge and was ready for tighter monetary policy, but said it may take several months to make a decision on running down the Fed’s $9-trillion balance sheet.

Brent crude futures touched $84 a barrel for the first time in two months and US crude futures crept up 0.1% to $81.35 a barrel on expectations fuel demand would continue to strengthen as the Fed was seen raising interest rates more slowly than expected.

Brent and US crude oil futures are trading at their highest since the highly contagious Omicron COVID-19 variant emerged in late November, as it has not impacted fuel demand the way previous variants did.

“Omicron is yesterday’s story now”, said Luca Paolini, chief strategist at Pictet Asset Management.

“The market isn’t moving on Omicron but on earnings, Fed and economic data.”

MSCI world stocks rose 0.42% and S&P futures gained 0.11% after the Nasdaq and S&P 500 recorded their best sessions of 2022, rising 1.4% and 0.9%, respectively.

European stocks rose 0.29% and Britain's FTSE 100 climbed 0.51%.

The dollar has dropped through its 200-day moving average against a basket of currencies and touched a six-week low of 95.533.

It also hit a 2022 low against the euro at $1.1378 and was steady at ¥115.385.

Traders are bracing for inflation data at 1.30pm GMT, with headline US inflation expected to hit an almost four-decade high of 7% year on year in December, and core inflation seen at 5.4%.

“If we see core inflation below 5%, we'll see the dollar sell off in a flash,” said Giles Coghlan, chief currency analyst at HYCM.

Sterling touched a two-month top of $1.3645 in Asia, as investors see Britain overcoming a wave of Covid-19 cases led by the Omicron variant and have priced in a nearly 80% chance of a Bank of England rate hike in February.

Benchmark 10-year treasury yields were steady at 1.7446% and have pulled back nearly seven basis points from an almost two-year high hit on Monday.

Germany's 10-year yield was little changed at -0.03% after rising as high as -0.014% on Tuesday, nearing positive territory for the first time since May 2019.

MSCI’s broadest index of Asia-Pacific shares outside Japan soared 1.5% to a one-and-a-half month high, led by a 5% jump for tech stocks in Hong Kong.

Japan's Nikkei rose 1.9%.

In China, a softer than expected reading on prices has drawn bets on policy easing.

Five-year Chinese government bond futures rose eight ticks to an 18-month high before trimming gains. Yuan gains were also capped.

Safe-haven gold fell 0.34% to $1,816/oz, though it is hemmed in a range it has kept for half a year.

Cryptocurrencies were steady with investors comforted that bitcoin’s support at $40,000 held this week. Bitcoin was trading at $42,681.

Reuters

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