Stocks, US futures up as risks ebb; dollar holds

Bloomberg

Stocks rise for a third day as optimism about vaccines eased concerns about the omicron variant and China policies helped buffer against fallout from mounting property debt distress.
Europe’s Stoxx 600 Index rose 0.5% after the biggest jump in more than a year, with healthcare shares outperforming and energy stocks down. US futures ticked up after the biggest surge since March.
Investors took comfort from early studies showing vaccines provide a partial shield against the new variant. Steps by Chinese authorities to limit the fallout from property market woes lifted some risk assets in Asia even as key debt deadlines at China Evergrande Group and Kaisa Group Holdings Ltd. passed without any sign of payment.
Treasury yields were steady after rising across the curve, and the dollar was little changed. Crude falls.
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Risk assets are recovering after a bout of turbulence sparked by the emergence of the new virus variant. So far, omicron cases haven’t overwhelmed hospitals and vaccine developments are encouraging. The S&P 500 and the Nasdaq 100 chalked their biggest gains since March and gauges of volatility retreated. Helping sentiment, the House passed a bill paving the way for a quick debt ceiling increase in the US.
“This anecdotal evidence appears to have calmed financial markets, for now, as evidenced by the recovery in risk assets,” Carol Kong, a strategist at the Commonwealth Bank of Australia, said about omicron. “But we caution against drawing conclusions from these early reports.” Unless the variant proves resistant to vaccines, “we expect the global economy will largely continue with its pre‑omicron recovery path,” she said.
Markets may not be clear of further turbulence amid lingering worries about central banks’ response to elevated price pressures, new restrictions to stem the spread of omicron and ratcheting up of geopolitical tensions. U.S. President Joe Biden warned his Russian counterpart Vladimir Putin of “strong” measures if Ukraine was invaded.
Jeffrey Gundlach sees “rough waters” ahead for financial markets as the Federal Reserve is poised to accelerate the end of quantitative easing and then turn toward raising interest rates. Goldman Sachs Group Inc. is warning dip buyers to proceed with caution amid the Fed’s hawkish tilt just as omicron spreads.
“In the coming few months it’s probably wise to have slightly less risk on your books as policy makers and markets figure out what they consider a good mix going forward,” Mikio Kumada, LGT Capital Partners Asia executive director and global strategist, said on Bloomberg Television. But, with the economy growing above potential and policy still accommodative, “there is no alternative to taking some type of risk whether it’s in credit or in equity if you want to have a positive return going forward,” he said.
Meanwhile, the list of Chinese developers warning they may not be able to meet upcoming financial obligations is growing. Trading in Kaisa Group’s shares was halted in Hong Kong pending an announcement containing inside information.