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Asia catches equities rally, oil skids

Asian shares have extended gains, continuing a global-relief rally as markets found positive news in early reports about the potential impact of the Omicron variant, although overnight advances in oil prices began to peter out.

“Markets are very sensitive to any slight new item relating to Omicron, and the absence of bad news is being taken very positively by equity markets, though – and I’m not a scientist – it seems too early to signal an ‘all-clear’,” Stefan Hofer, chief investment strategist for private bank LGT in Asia Pacific, said.

“With each new variant, we go through a period of waiting for some signal from the scientific community, which is difficult for markets, but that’s what we got yesterday.”

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 per cent and Japan’s Nikkei rose 1 per cent. US S&P 500 futures rose 0.25 per cent.

British drugmaker GSK said on Tuesday its antibody-based COVID-19 therapy with US partner Vir Biotechnology is effective against all mutations of the Omicron variant.

Also a South African study on Tuesday suggested booster doses of the vaccine produced by Pfizer could help fend off infection from Omicron, even though the study showed the new strain can partially evade the protection from two vaccine doses.

Those reports helped MSCI’s all-country world index to close 2.1 per cent higher on Tuesday, in its biggest percentage gain since November 2020. Oil also rose more than 3 per cent.

Markets are also focused on US CPI data due on Friday, with a high print likely to point policy makers towards accelerating the tapering of the Federal Reserve’s massive bond-buying program which has put a floor under equity prices since the start of the pandemic.

“The relief rally could be quite short lived if US data on Friday shows high inflation is looking sticky, or persistent – pick a word that isn’t transitory,” Hofer said.

Last week, Fed Chair Jerome Powell said it might be time to stop seeing inflation as transitory and hinted the Fed might speed up tapering.

That ought to support the US dollar, particularly against other currencies with more dovish central banks.

On Wednesday the greenback was little changed against a basket of six major peers, although the Australian dollar extended its overnight gains to $US0.7122, its highest in a week, having fallen to a 13-month low due to worries about Omicron and a comparatively dovish central bank

Better news and rising commodity prices helped the Aussie, while the rebound in oil prices helped the Canadian dollar to rise into a Bank of Canada policy meet later on Wednesday.

All 29 economists polled by Reuters expect the Bank of Canada to keep rates unchanged at 0.25 per cent at the meeting.

The benchmark US 10-year Treasury yield edged lower after two days of gains on better news about Omicron.

It was last at 1.4614 per cent, well up from Friday’s recent low of 1.335 per cent when Omicron worries first hit, but also well short of its pre-Omicron recent high in late November of 1.693 per cent.

The two-year yield, which rises with expectations of higher interest rates, was at 0.6892 per cent just shy of its recent top.

US crude dipped 0.45 per cent to $US71.79 a barrel. Brent crude fell 0.44 per cent to $US75.11 per barrel.

Spot gold rose 0.3 per cent to $US1,789 an ounce, within its recent range, and rival inflation hedge bitcoin was also calm after an exciting weekend, barely changed at $US50,600.

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