TOKYO, RAW – Stocks rose in choppy trade on Thursday as worries about the economic impact of the Omicron coronavirus variant ebbed but increasing caution ahead of US 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 rose 0.5 per cent to a two-week high. Japan’s Nikkei was steady, having gained 3.5 per cent in the previous two sessions.
S&P 500 futures were steady after a 0.3 per cent rise in the cash index overnight carried it to within one per cent 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 US 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 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 per cent in three sessions and flat at $US0.7166 ($A0.9984) in early trade on Thursday.
Brent crude has added $US10 ($A14) a barrel from last week’s three-and-a-half-month low and was steady at $US75.82 ($A105.63).
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 per cent, while inflation picked up to 2.3 per cent year-on-year.
The main scheduled event of the week is Friday’s US 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 per cent. They were steady at 0.6955 per cent on Thursday and 10-year yields held at 1.5332 per cent after a 4.6-basis-point jump on Wednesday.
Economists expect annual headline US inflation to have hit 6.8 per cent 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 US 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 $US1.1333 ($A1.5789) 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 $US1.31615 ($A1.8336) overnight with the announcement of the tighter COVID-19 rules.
The US dollar index hovered at 96.029.
It had recovered slightly to $US1.3197 ($A1.8386) on Thursday. Gold was steady at $US1,783 ($A2,484) and ounce and bitcoin looks to have found a floor around $US50,000 ($A69,660).