- Stocks mixed after more US all-time highs as trading volumes thin out further
- Investor optimism put to the test amid surging Covid cases globally
- Dollar rebounds from lows as Treasury yields spike
Surging virus cases put investors on edge
Markets stuck to the mildly positive tone on Thursday as investors constantly reassessed the risks from the latest wave of Covid-19 cases that is gripping most nations around the world. The shrinking liquidity during this slow holiday week has brought about small bouts of volatility, adding some much needed excitement to the festive lull.
The Omicron variant is sweeping across the globe at an astronomical rate, pushing daily infections to record levels in several countries, including the US, UK, Australia and France. However, all the studies continue to indicate that Omicron is less severe than other variants, and with vaccination rates now at a very high level in all the major economies, investors are betting that tough curbs won’t be necessary to combat the Omicron outbreak.
But one country that is not giving up on its zero-Covid policy is China, which has resorted to draconian measures to stamp out the virus in Xi’an. The city is one of China’s many manufacturing hubs and memory chip manufacturer Micron Technology has warned that the lockdown in Xi’an is likely to affect production.
The chip shortages have already caused widespread disruption in global supply chains as well as push up the price of automobiles. However, there was some good news as South Korean industrial output bounced back strongly in November, suggesting that the chip crisis is easing.
There are also hopes that more policy easing is on the way in China after the government signalled it will guide borrowing costs lower through increased bond issuance in 2022.
Another quiet day looms as end of year approaches
Yet again, traders seem to be leaning towards the optimistic side of things and the worrying trend in virus numbers has surprisingly not sparked any undesirable knee-jerk reactions despite the low volumes. Most big players have likely already closed out their positions for the year so trading looks set to remain muted until the New Year.
Stocks in China ended the session higher, but Japan’s Nikkei 225 was unable to bolster its year-to-date gains on its last trading day of 2021, slipping by 0.4%. European shares opened mixed and US futures stood in positive territory at the time of writing.
Wall Street resumed its Santa rally yesterday, with both the S&P 500 and Dow Jones closing at new all-time highs. However, the gains were modest and the upbeat sentiment wasn’t shared in the tech sector, as small-cap stocks pulled the Nasdaq Composite lower. Though, the Nasdaq 100 still managed to eke out small gains.
A spike in Treasury yields pressured interest-sensitive stocks on Wednesday after a US Treasury auction for seven-year notes was met with poor demand. Although the weak auction was mainly down to many investors being away during the holiday period, there were still some ripples across the yield curve, most notably in the 10-year yield, which subsequently jumped to 1.56%.
Dollar goes on an end-of-year offensive
Bond markets were quieter, though, on Thursday and the higher Treasury yields didn’t do much for the dollar overnight, with the US currency only now catching a bid.
The greenback has gone on the offensive today after yesterday's sudden dip and is up about 0.3% against a basket of currencies. The yen continues to crumble against its US rival, breaching the 115 level and on track to finish the year down by more than 11%. Sterling, meanwhile, has reversed lower after failing to break above $1.35 earlier in the session.
The euro is stuck in its familiar sideways range and headed for losses of more than 7% in 2021. From the commodity pairs, the Australian dollar stands out as having put up a stronger showing this week compared to its kiwi and loonie peers, but year-to-date, it is the worst performer out of the three.