Bulls take charge as Omicron concerns ease

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Global equity markets and oil prices surged on Tuesday after a timely shot of Chinese stimulus helped spark a rally that was further fueled by views that the Omicron COVID-19 variant will not cause major economic damage.

The Nasdaq jumped 3% as technology bounced back, helping the FTSEurofirst 300 index of leading European companies post its first back-to-back run of more than 1% gains since February.

Tech stocks climbed 5.6% in Europe, while the S&P information technology sector rose 3.3%, driving almost half of the S&P 500’s gains.

Semi-conductors advanced 5.2% and all 11 of the S&P sectors rose.

Asia overnight cheered record bounces by some of China’s beaten-down tech giants, including e-commerce giant Alibaba Group and other technology majors, including JD.com Inc and Baidu Inc.

The notion among portfolio managers of not being left behind in a rally that was impressive drove equities higher, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“Did the seasonal Santa Claus rally, which we typically have at some point in December, start yesterday?” he said. “There’s certainly fear of missing out.”

An easing of Omicron fears emboldened investors to have a little more of a “risk-on” mentality, James said.

Preliminary evidence indicates that Omicron likely has a higher degree of transmissibility but is less severe, top US infectious disease expert Anthony Fauci said on Tuesday.

MSCI’s all-country world index advanced 2.17% and the FTSEurofirst 300 closed up 2.42%.

On Wall Street, the Dow Jones Industrial Average rose 1.46%, the S&P 500 gained 2.09% and the Nasdaq Composite advanced 3.09%.

Easing Omicron worries and the Chinese stimulus lifted riskier currencies, with the Australian dollar leading the charge, gaining 0.9%.

The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.1% to 96.387.

The euro fell 0.3% to $1.1257 and the yen rose 0.1% to $113.57.

Expectations the Federal Reserve will accelerate the tapering of its bond-buying program when it meets next week in response to a tightening labor market also supported the dollar.

The yield on 10-year US Treasury notes rose 4.6 basis points to 1.480%.

Investors believe the Fed will do more, and sooner, to fight inflation, said David Petrosinelli, senior trader at Inspere X, referring to a flattening of the yield curve measuring the gap between yields on two- and 10-year Treasury notes.

“The front end is focused on the Fed tightening policy because they need to, and the back end is more recognition that this economy probably is going to slow down in the first quarter,” he said.

The equity gains came after China’s central bank injected its second shot of stimulus since July by cutting the amount of cash that banks must hold in reserve.

Uncertainty about its property sector remained, however, as Evergrande teetered on the brink of default again.

But data showing stronger import growth was “a positive sign on the strength of domestic demand,” RBC analyst Adam Cole said.

Embattled developer China Evergrande failed to make payments on some US dollar bonds at the end of a month-long grace period, sources familiar with the situation told Reuters on Tuesday, setting the stage for a massive default by the world’s most indebted property developer.

Australia’s S&P/ASX 200 rose nearly 1% as its central bank left interest rates at a super-loose 0.1% and Japan’s Nikkei advanced 1.9% as the yen dipped.

Oil prices climbed more than 3% on easing concerns Omicron will reduce demand and as the prospect of an imminent rise in Iranian oil exports receded.

Brent crude rose $2.36 to settle at $75.44 a barrel.

US crude settled up $2.56 to $72.05 a barrel.

Gold prices inched higher as attention turned to US inflation data due on Friday, which could influence the pace at which the Fed hikes interest rates.

US gold futures settled up 0.3% at 1,784.70 an ounce.