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Asia stocks dip amid Omicron, Fed decision

Asian stocks and oil prices have slipped as the spread of the Omicron coronavirus variant rattles investors who were already on edge ahead of a slew of central bank decisions this week.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.46 per cent.

China’s CSI300 index was also 0.41 per cent lower, after health authorities in Tianjin detected the country’s first Omicron case.

Major Chinese manufacturing province Zhejiang is also fighting its first COVID-19 cluster this year, with tens of thousands of citizens in quarantine and virus-hit areas suspending business operations.

The combination of economic risks from Omicron and a potentially more hawkish tone from the Federal Reserve on Wednesday dampened risk appetite.

“We expected to see an acceleration of tapering by the Fed and, of course, that bringing forward interest rate increases, so it’s going to be interesting to see how the market deals with that,” said John Milroy, an adviser at Ord Minnett in Sydney.

“There are reasons why you might expect to see money go back into cash for a bit, in expectation that the start of 2022 is going to be a volatile period.”

Hong Kong’s Hang Seng Index was down 1 per cent, South Korea’s KOSPI was 0.4 per cent lower, Japan’s Nikkei stock index was down 0.13 per cent and Australian shares were 0.31 per cent lower.

The Fed is on Wednesday expected to signal a faster wind-down of its $US120 billion a month bond buying program in a move to fight high inflation, which could move it one step closer to raising interest rates.

The US dollar edged higher ahead of the upcoming meetings, with investors eyeing the possibility the Fed will start to raise rates in 2022.

“Volatility will remain elevated throughout all of (these) decisions from the Fed, ECB, and BOE,” said Edward Moya, senior analyst at OANDA.

The European Central Bank, the Bank of England and the Bank of Japan are also meeting this week, and are each heading towards normalising their own monetary policies.

Fears over the Omicron variant of COVID-19 were heightened after British Prime Minister Boris Johnson warned of a “tidal wave” of new cases, and the World Health Organization said it poses a “very high” global risk, with some evidence it evades vaccine protection.

Oil futures eased as new doubts emerged about the effectiveness of vaccines against Omicron, though OPEC predicted in its monthly report the variant’s impact on fuel demand would be mild.

Brent futures fell 83 cents, or 1.10 per cent, to $US74.32 a barrel, while US West Texas Intermediate crude was 8 cents, or 0.11 per cent, lower at $US71.21.

The FTSE index fell 0.83 per cent, while the pan-European STOXX 600 index lost 0.43 per cent and MSCI’s gauge of stocks across the globe shed 0.80 per cent.

The Dow Jones Industrial Average fell 0.89 per cent and the technology-heavy Nasdaq Composite fell 1.39 per cent.

The dollar index rose 0.27 per cent, with the euro down 0.01 per cent to $US1.1282, seen vulnerable given expectations the Fed will tighten policy more quickly than the ECB.

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