European equities edged up on Monday, following falls on Wall Street in the previous session, as debate about the Omicron coronavirus variant and the future direction of monetary policy kept trading conditions volatile.
The Stoxx 600 share index gained 0.3 per cent. London’s FTSE 100, which is dominated by economically sensitive banks, commodities producers and miners, rose 0.6 per cent. Meanwhile, futures contracts tracking Wall Street’s S&P 500 share index were flat in late-morning European trading, while those tracking the technology-focused Nasdaq 100 dipped 0.6 per cent.
The moves came after investors on Friday retreated from shares in large US technology and other early-stage companies, whose higher valuations make them sensitive to sudden shifts in market sentiment. The Nasdaq 100 ended last week almost 2 per cent lower.
Tech stocks, which during the pandemic era have been boosted by coronavirus restrictions that force people to spend more time at home, may no longer receive such support, according to Trevor Greetham, head of multi-asset at Royal London. “This is now a hugely expensive sector, just very overvalued,” he said.
US jobs data released on Friday showed US employers added 210,000 workers last month, fewer than half the number economists polled by Reuters had expected, but also a significant fall in the unemployment rate to 4.2 per cent.
That report came days after Federal Reserve chair Jay Powell signalled his support for a quicker reduction of the central bank’s $120bn a month of bond purchases that have lowered borrowing costs and lifted stock valuations through the pandemic era.
“The weaker [jobs] print doesn’t change the likelihood of a faster taper as the Fed wants to signal inflation vigilance and retain maximum flexibility to hike [rates],” analysts at TD Securities said in a note to clients.
US consumer prices rose at their highest annual rate for 30 years in October.
Equity markets were displaying concerns about further high inflation, Toscafund chief economist Savvas Savouri said, because restrictions on movement caused by Omicron may exacerbate supply chain disruptions that have raised input prices since March 2020. “Equity markets need earnings and we are seeing uncertainty about earnings,” he said.
The yield on the benchmark 10-year Treasury rose 0.04 percentage points to 1.38 per cent as the price of the debt fell. This key debt yield, which influences borrowing costs worldwide, traded at above 1.65 per cent in late November, before the World Health Organization declared Omicron a variant of concern.
On Sunday, top US health official Anthony Fauci called early signals about the severity of Omicron “encouraging”, saying to CNN that while it was too soon to know the full consequences of the new variant, “we feel certain that there will be some degree and maybe a considerable degree of protection” with booster jabs.
But investors expect markets to swing on fresh headlines about Omicron while conclusive data about its potential to overwhelm health services remains elusive.
“It has also not been a good time for the Fed to talk about speeding up monetary tightening,” Greetham said. “Central banks should step back and wait to see what happens with the variant.”
In Asia, Hong Kong’s Hang Seng index dropped 1.8 per cent, with significant share price falls for large Chinese tech companies including Alibaba and Tencent. The Topix in Tokyo closed 0.5 per cent lower.
Brent crude, the international oil benchmark, rose 2.7 per cent to $71.80 a barrel.
European stocks open higher after volatile week
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