Asian shares firmer amid vaccine optimism

Stocks and US futures rose along with Asian dollar bonds as optimism about vaccines eased the concern about the Omicron variant and Chinese policies helped to buffer against fallout from mounting property debt distress.

MSCI’s Asia-Pacific benchmark advanced for a second day. The onshore yuan strengthened to its strongest level since 2018. Pfizer’s shot has been shown to provide a partial shield against the Omicron variant in a SA study. European futures climbed.

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 passed without any sign of payment. Asian dollar bonds and Chinese junk notes rallied the most in a month, extending a rebound this week after China’s central bank cut the reserve requirement ratio for most banks on Monday.

Treasury yields fell slightly after rising across the curve Tuesday, when the two-year yield reached the highest since March 2020 and the 10-year yield moved back towards 1.5%. The dollar dipped against most of its major peers. Crude was steady after surging past $72 a barrel in New York. Bitcoin climbed back above $50,000.

Risk assets are recovering after a bout of turbulence sparked by the emergence of the new virus variant. So far, Omicron cases have not overwhelmed hospitals and vaccine developments are promising.

The S&P 500 and the Nasdaq 100 chalked their biggest gains since March on Tuesday. Gauges of volatility retreated, with the Cboe Volatility Index sliding.

“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 in a note. “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 the lingering worry about central banks’ response to elevated price pressures, new restrictions to stem the spread of omicron and ratcheting up of geopolitical tension. US 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 towards raising interest rates. Goldman Sachs Group is warning dip buyers to proceed with caution amid the Fed’s hawkish tilt just as Omicron spreads. 

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. 

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Bloomberg