As caution returns, equities rally comes to a halt

LONDON, Dec. 9 (Reuters) – Global stock markets stagnated at two-week highs on Thursday as restrictions increased in parts of the world to contain the spread of COVID-19, including the new variant of Omicron, have tempered optimism on the vaccine front.

European stocks fell after an upward opening (.STOXX), US equity futures were in the red and the Japanese Nikkei stock index fell almost half a percent.

That left the MSCI Global Stock Index (.MIWD00000PUS) hovering near two-week highs but struggling to move up after three days of gains. It is up more than 3% this week and is expected to experience its biggest weekly increase in more than 10 months.

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News on Wednesday from drugmakers Pfizer (PFE.N) and BioNTech (22UAy.DE) that a three-shot treatment of their COVID-19 vaccine was found to generate a neutralizing effect against Omicron in a lab test. encouraged investors and lifted the S&P 500 (.SPX) to less than 1% of a new high.

But market players are now cautious about new measures being taken in many countries to contain the spread of the new variant.

Stricter COVID-19 restrictions in the UK were unveiled on Wednesday evening. Investment bank Jefferies Financial Group (JEF.N) has asked staff to work from home again, raising questions about banks’ efforts to resume operations as usual. Read more

“With Omicron, we still don’t know the effectiveness of the vaccines, the spread and the nature of this variant,” said Guy Miller, chief market strategist at Zurich Insurance Group.

“In the short term, it is difficult to determine where the markets are going. In the longer term, we still have many drivers that favor equities,” he said, adding that he expected a macro environment. -solid economy next year which should support corporate earnings.

London’s FTSE index fell 0.2% (.FTSE) with British Airways owner IAG (ICAG.L) down 4.7%, while hotel and restaurant operator Whitbread decreased by 1% following the latest restrictions.

“The news that new social restrictions are being imposed on the UK (…).

Oil prices were also on the defensive. Brent crude futures fell 0.8% to $ 75.24 a barrel, US crude slipped 0.6% to $ 72.

The latest developments in China’s struggling real estate sector have also dampened the mood in global markets.

Developers China Evergrande and Kaisa have been demoted to “narrow default” by rating agency Fitch due to non-payment of offshore bonds, while a source says Kaisa has started work on her debt restructuring. offshore $ 12 billion. Read more

Hopes of monetary easing in China after a decline in banks’ reserve ratio this week and fairly benign inflation figures on Thursday pushed up Chinese and Asian stocks outside of Japan (.MIAPJ0000PUS), which rose 0. 6% to reach a two-week high. Read more

China’s CSI300 index (.CSI300) rose 1.7% and gained 3.6% for the week so far.

Chinese inflation

Attention shifted to US inflation data on Friday and a Federal Reserve meeting next week for guidance on the timing of a first rate hike.

Fed funds futures are valued for rates to take off next May and on Wednesday two-year Treasury yields hit their highest level since March 2020 at 0.7140%.

They were flat around 0.68% and 10-year yields held steady at 1.50% after jumping 4.6 basis points on Wednesday.

Economists expect US headline inflation to hit 6.8% last month.

“An acceleration in the pace of reduction by the Fed is almost seen as inevitable,” analysts at ANZ Bank said, and beyond that, US interest rates are expected to rise in 2022.

“But a high number could raise expectations of a hike in the second quarter of next year.”

Policymakers at the European Central Bank are focused on a temporary increase in regular bond purchases that would significantly reduce overall debt purchases once its pandemic program ended in March, sources told Reuters. Read more

Elsewhere, the US dollar index strengthened to 96.125 and the euro weakened 0.2% to $ 1.1317.

The greenback fell a fifth of a percent to 113.46 yen, while the British pound held near Wednesday’s one-year low of $ 1.31615.

The Chinese yuan weakened after the central bank announced it would increase the foreign exchange reserve requirement ratio for financial institutions by 200 basis points from December 15.

The move would force banks to set aside more of their foreign currency deposits, a move, according to the markets, intended to slow the recent rapid appreciation of the yuan. Read more

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Reporting by Dhara Ranasinghe Additional reporting by Tom Westbrook on SYDNEY; Editing by Mark Potter and Bernadette Baum

Our standards: Thomson Reuters Trust Principles.

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