Oil drops, stocks falter over concerns over Omicron variant

NEW YORK, Dec.1 (Reuters) – A gauge of global stock markets pulled back from early gains on Wednesday as concerns over the first U.S. case of the Omicron variant and earlier-than-expected interest rate hikes the next year by the Federal Reserve have turned investor sentiment bearish.

Major Wall Street economic sectors were previously a sea of ​​green as European stocks posted their best session in nearly six months after Tuesday’s sharp drop sparked by unease over rising inflation and questions about the new variant of the coronavirus.

Safe havens for the yen and Swiss franc rose earlier even as the more risk-averse British and Australian currencies rebounded. A similar investor sentiment could be seen in US stocks when earlier gains of over 1.5% were wiped out.

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The United States on Wednesday identified its first known case of COVID caused by the Omicron variant, found in a fully vaccinated patient who traveled to South Africa, as scientists continue to study the risks the news could pose. version. Read more

“We don’t have all the facts. There is no clarity on how easily it spreads, whether the vaccines are effective,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York City. . “It causes a lot of fluctuations in the market.”

MSCI’s Global All Country Index (.MIWD00000PUS) closed down 0.26% after a previous gain of 1.8%. The large STOXX Europe 600 index (.STOXX) closed up 1.7%, the German DAX index (.GDAXI) gaining 2.5% and the French CAC40 increasing by 2.4%

On Wall Street, the Dow Jones Industrial Average (.DJI) slipped 1.34%, the S&P 500 (.SPX) fell 1.18% and the Nasdaq Composite (.IXIC) fell 1.83%. Only S&P’s utilities sector (.SPLRCU) closed higher.

Investors also remain wary of the outlook for rising inflation and a faster pace of the Fed’s plans to scale back its massive bond-buying program.

With a robust US economy and supply-demand imbalances poised to persist in the near term, policymakers must be prepared to respond to the possibility that inflation may not fall as expected next year, said Fed Chairman Jerome Powell during a hearing before the United States House of Representatives. Representatives. Read more

The market perceives Powell as more hawkish than in the past and expects three rate hikes in 2022 and three more the following year, said Jack Janasiewicz, chief portfolio strategist at Natixis Investment Managers Solutions in Boston.

“This concept of inflation is on the rise and the Fed is behind the curve and they’re going to have to tighten massively, we don’t buy into it,” Janasiewicz said. “The market is a bit ahead of itself when it comes to this.”

U.S. Treasury yields slashed gains on a security bid after the discovery of the U.S. Omicron case, but remained higher that day as investors assessed the likelihood that the Fed will step up the pace of its purchases of ‘obligations.

A closely watched portion of the yield curve measuring the spread between two- and ten-year Treasury bill yields, which is considered an indicator of economic expectations, was at 85.5 basis points, the flattest this year according to some accounts.

Market expectations for future consumer prices have come down, with the breakeven 10-year TIPS rate of 2.428%, indicating that inflation will average around 2.43% per annum over the course of of the next decade.

The 10-year US Treasury bill fell 1.7 basis points to drop 1.424%.

Eurozone manufacturing growth has picked up and supply chain bottlenecks deepened, pushing up the cost of raw materials at the fastest rate in more than two decades, survey found. , which heightens worries about global inflation. Read more

The dollar index, which tracks the greenback against a basket of six currencies, rose 0.093% to 96.064.

The euro lost 0.19% to $ 1.1314, while the yen traded 0.31% to $ 112.7800.

U.S. crude oil futures retreated after a U.S. official said the country continued to consider tools to lower energy prices and government data indicated weaker gasoline demand .

Crude prices also fell, as the Omicron variant triggered new travel restrictions that could dampen demand for oil and after an OPEC + document showed the group was forecasting a larger oil surplus than planned for the new year. Read more

U.S. crude futures fell 61 cents to $ 65.57 a barrel after trading up to 4% higher, while global benchmark Brent slipped 36 cents to settle at $ 68.87 per barrel.

US gold futures were up 0.4% to $ 1,784.30 an ounce.

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Reporting by Herbert Lash, additional reporting by Karen Brettell in New York Editing by Sonya Hepinstall

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