NEW YORK:A gauge of global equity markets rose on Wednesday, but some stocks faltered on Wall Street as concerns about the Omicron variant and sooner-than-expected interest rate hikes by the Federal Reserve next year turned investor sentiment bearish.
The major economic sectors on Wall Street earlier were a sea of green, and European stocks posted their best session in almost six months after Tuesday’s sharp sell-off triggered by unease over rising inflation and questions regarding Omicron.
The safe-haven yen and Swiss franc earlier rose even as the risk-on British and Australian currencies rebounded from prior-day lows, as the moves suggested the market’s fragility seen when U.S. stocks pared some earlier gains of more than 1.5%.
“We don’t have all the facts. There isn’t clarity of how easily it spreads, whether the vaccines are effective,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “That’s causing a lot of swings in the market.”
The United States identified a first case of the Omicron variant in California, the U.S. Centers for Disease Control and Prevention said, after dozens of other countries detected its arrival.
MSCI’s all-country world index advanced 0.66% while the broad STOXX Europe 600 index closed up 1.71%.
On Wall Street, the Dow Jones Industrial Average rose 0.05%, the S&P 500 gained 0.35% and the Nasdaq Composite fell 0.23%.
Investors remain skittish about the outlook for rising inflation and a quicker pace of Fed plans to taper its massive bond purchasing program.
With a robust U.S. economy and supply-demand imbalances poised to persist near-term, policymakers need to be ready to respond to the possibility that inflation may not recede next year as expected, Fed Chair Jerome Powell said in a hearing before the U.S. House of Representatives.
The market perceives Powell as more hawkish than the past and expects three rate hikes in 2022 with another three the following year, said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions in Boston.
“This concept of inflation running way to the upside and the Fed’s behind the curve and they’re going to have to massively tighten, we don’t subscribe to that,” Janasiewicz said. “The market’s a little ahead of itself in terms of that.”
U.S. Treasury yields pared gains on a safety bid after the Omicron variant was detected in California, but remained higher on the day as investors priced in the likelihood the Fed will speed up the pace of its bond purchase taper.
A closely watched part of the yield curve measuring the gap between yields on two- and 10-year Treasury notes, which is seen as an indicator of economic expectations, was at 86.9 basis points, or the flattest this year some analysts say.
Market expectations of future consumer prices slid, as the 10-year TIPS breakeven rate was at 2.458%, indicating inflation will average about 2.46% a year for the next decade.
The 10-year U.S. Treasury note fell 0.3 basis points to yield 1.4358%.
A survey showed manufacturing growth in the euro zone accelerated and supply chain bottlenecks worsened, driving the cost of raw materials up at the fastest rate in over two decades to add to global inflation concerns.
The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.061% to 96.032.
The euro was down 0.18% at $1.1316, while the yen traded down 0.29% at $112.8000.
U.S. crude oil futures retreated after an American official said the country was continuing to consider tools to lower energy prices, and as government data pointed to weaker gasoline demand.
Crude prices also fell as the Omicron variant triggered fresh travel restrictions that could dampen oil demand and after an OPEC+ document showed the group forecasting a bigger oil surplus in the new year than previously thought.
U.S. crude futures fell 61 cents to settle at $65.57 a barrel after earlier trading as much as 4% higher, while global benchmark Brent crude slid 36 cents to settle at $68.87 a barrel.
U.S. gold futures settled up 0.4% at $1,784.30 an ounce.
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