Risk-on global rally resumes as Omicron variant fears recede

Global shares extended a recent rally on Thursday while safe-haven bonds and currencies eased as markets welcomed signs that the Omicron variant of COVID-19 might be less severe than feared, as well as robust U.S. economic data.

The STOXX index of Europe's 600 largest shares rose 0.3%, following earlier gains in Asia. Japan's Nikkei gained 0.57% and MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8%.

It put stock markets on course for a third successive day of gains as they recovered from a jolt on Monday when worries about the new coronavirus variant pushed investors to safe-haven assets like the greenback.

"The recent health data from the UK and other places around the world indicate that the worst case is unlikely: even though (Omicron) transmission rates are reportedly higher, this variant seems less virulent and less prone to cause serious illnesses or death," said David Chao, global market strategist Asia Pacific at Invesco.

The risk of needing to stay in hospital for patients with the Omicron variant of COVID-19 is 40-45% lower than for patients with the Delta variant, according to research by London's Imperial College published on Wednesday.

European government bond yields continued to tick up as the trickle of risk sentiment flowing back into the market reduced the need for safe-haven debt. Germany's 10-year Bund yields hit -0.284%, their highest since late November.

Italian 10-year bonds likewise hit a one-month high in early trading..

Yields move inversely to price.

IMPROVING CONFIDENCE

Meanwhile the main U.S. benchmarks ended higher overnight after data showed U.S. consumer confidence improved further in December, and the White House said it was resuming talks on a massive social spending and climate change bill with holdout senator Joe Manchin. [.N]

While markets on both sides of the Pacific have risen this week, MSCI's broad Asian benchmark's gains began after they hit this year's low on Monday, while U.S. benchmarks are in sight of last month's record highs.

Strong economic growth in the United States and jitters sparked by sweeping regulatory changes in China earlier this year - which roiled shares in industries from technology to property - have driven investment away from Asia.

Hong Kong's Hang Seng Index has been hard hit, falling 15% in 2021, on track for its worst year since 2011.

On Thursday, the benchmark rose 0.2%, though index constituent JD.com's shares dropped as much as 11% after the e-commerce company's largest shareholder, Tencent, said it would give most of its $16.4 billion stake to its own shareholders as a dividend. [nL4N2T802E]

In currency markets, in line with the 'risk-on' mood, the dollar index dropped to as low as 96.018, its lowest since Dec. 17, before recovering slightly to 96.128.

The dollar's recent losses have been fairly broad-based; the euro has gained for the last four sessions, and the Australian dollar - often seen as proxy for risk appetite - is up 1.2% on the week.

The yield on benchmark 10-year Treasury notes was last at 1.4618%, in the middle of its recent range.

Oil prices seesawed early on Thursday. Brent crude futures and U.S. West Texas Intermediate (WTI) crude futures edged down 0.25%, after posting gains earlier in the day, as rising travel curbs in countries including China and Australia sapped optimism generated by some positive Omicron news.[O/R]

Spot gold rose 0.17% to 1,806 an ounce, helped by the softer dollar. [GOL/]

 

(Reporting by Alun John and Lawrence White; Editing by Stephen Coates, Kenneth Maxwell and Ana Nicolaci da Costa)