Global stocks fall on Omicron fears and after central banks' hawkish tilt

Stocks fell on Friday as investors worried about surging Omicron cases and wrestled with this week's hawkish turn from major central banks in the fight against inflation.

European stocks dropped, Asian shares closed near the year's lows and Wall Street looked set to open weaker after a bruising previous session that was led by sharp falls in tech stocks.

By 0905 GMT, the pan-European EUROSTOXX was down 0.48%. Germany's DAX dropped 0.48%, although Britain's FTSE 100 bucked the trend with a 0.1% rise. Wall Street futures were in the red.

U.S. stocks have now reversed all of their gains from Wednesday when markets welcomed the Federal Reserve's commitment to tackle rising inflation with faster bond tapering and interest rate rises next year.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.7% on Friday, only just above the year low set last week.

Chinese blue chips lost 1.59% and suffered their worst week in three months, while an index of Hong Kong-listed tech firms hit a record low, not helped by news Washington put investment and export restrictions on dozens of Chinese companies.

Stocks are going into the year-end period -- when many traders are reluctant to put on new positions -- near record highs but with plenty to worry about.

The hawkish tilt from central banks this week including the Federal Reserve and Bank of England, and less so the European Central Bank, has some investors confident policymakers can curb higher inflation. Others are concerned markets pumped up on cheap money are vulnerable to even the smallest of pullbacks in stimulus.

Even the Bank of Japan on Friday dialled back some emergency pandemic-funding on Friday but maintained its ultra-loose policy and extended financial relief for small firms, cementing expectations it will remain among the most dovish central banks for the foreseeable future.

Then there are worries that rising Omicron infection rates mean a rocky few months for the global economy.

"Volatility is rising again, lowering the predictability of what may happen next. Although this week gave little answer about whether we will see a Santa rally, we now have a clearer roadmap about what should happen on the U.S. monetary policy front," said Ipek Ozkardeskaya, Senior Analyst at Swissquote.

U.S. YIELDS DROP

In a further sign of the cautious mood, the yield on benchmark 10-year U.S. Treasury notes fell to as low as at 1.409%, while the two-year yield was steady at 0.623%, having rolled off its recent highs. [US/]

"Ordinarily, in the wake of a more hawkish (Federal Open Market Committee) outcome, yields would be expected to rise in anticipation of the Fed tightening cycle," said analysts at Westpac in a morning note.

"However, there are competing dynamics at present, with ongoing inflation fears sparking the Fed's tougher rhetoric being offset by fears that economic growth will be derailed by Omicron in the near term," they said.

The Fed was not the only central bank to turn hawkish after the Bank of England on Thursday surprised markets by becoming the first G7 central bank to raise interest rates.[FRX/]

Sterling slipped 0.1% but at $1.331 held to most of Thursday's jump following the BoE hike.

The dollar index was trading at 96, unchanged on the day and off nearly 1% since Wednesday's high immediately after the Fed's announcement. Japan's yen was up marginally at 113.65 yen per dollar.

Oil prices fell with Brent crude down 0.68% to $74.51 a barrel and U.S. crude losing 0.83% to $71.78 a barrel.[O/R]

Spot gold rallied, moving past a symbolic $1,800 level to trade 0.6% higher at $1,809 an ounce. [GOL/]

 

(Additional reporting by Alun John in Hong Kong; editing by David Evans)