Asia: Stocks subdued, oil caps stellar year

[SYDNEY] Asian shares flatlined on a slow Thursday (Dec 30) as the spread of Omicron clouded what is the last trading day of the year for many exchanges, while oil was close to finishing 2021 with gains of more than 50 per cent.

With coronavirus cases hitting record highs, many countries are trying to limit the economic damage by relaxing rules on isolation rather than resorting to lockdowns.

There was some positive economic data from South Korea where a 5.1 per cent surge in November industrial output could signal an easing in global supply bottlenecks.

MSCI's broadest index of Asia-Pacific shares outside Japan were flat, leaving it down 6 per cent on the year.

Chinese blue chips added 1 per cent as Beijing signalled lower rates in 2022, though that was still off 5.5 per cent for the year.

Japan's Nikkei slipped 0.2 per cent, giving it a modest gain of 4.6 per cent for the year but short of a 3-decade top reached in September. Tokyo is shut on Friday (Dec 31).

Taiwan was an outperformer with a rise of 24 per cent for the year thanks to red-hot demand for computer chips amid limited supply.

BofA analyst Ajay Kapur sees some upside for Asian markets in the near term but is neutral from the second quarter onward given that is when global liquidity is likely to peak as the Federal Reserve stops buying assets.

He is also bearish on China on expectations the economy will continue to slow and company earnings disappoint.

S&P 500 futures and Nasdaq futures were all but steady, while Euro Stoxx 50 futures inched up 0.1 per cent and FTSE futures dipped 0.1 per cent.

Wall Street has had a stellar year thanks to upbeat corporate earnings and extraordinary helpings of policy stimulus. The S&P 500 is up a hefty 28 per cent and looking at its strongest 3-year performance since 1999.

The Nasdaq is ahead by 22 per cent on the year, though much of that is due to stratospheric increases in the value of just 7 tech groups - Apple alone makes up 11 per cent of the index.

Bond markets have been stressed by the persistence of US inflation and a resulting hawkish turn by the Fed, with investors now pricing a first rate hike as early as March or May.

Two-year yields have shot up 55 basis points since September to stand at 0.75 per cent, near the highest since March last year.

Longer-term bonds have suffered relatively less and the yield curve has flattened markedly, suggesting investors are wagering a more aggressive Fed now will mean slower inflation and growth in the future and a lower peak for rates.

On Thursday, 10-year yields were up 6 basis points for the week at 1.55 per cent but well below the 1.776 per cent peak hit in April.

The Fed outlook has combined with safe-haven flows to underpin the US dollar, though it ran into some profit taking overnight as the euro bounced to US$1.1338 and away from a November trough of US$1.1184.

Much of the action came in the yen, which has run into broad year-end selling over the past week or so. The euro reached its highest since mid-November at 130.57 yen, as did the dollar at 115.06 yen.

In commodity markets, gold eased to US$1,801 an ounce, leaving it 5 per cent lower for the year.

Oil prices rose after government data showed US crude inventories fell last week, offsetting concerns that rising coronavirus cases might reduce demand.

That set the seal on a spectacular year for crude as Brent climbed more than 50 per cent amid limited supplies, adding considerably to the global inflation pulse.

On Thursday, US crude was up another 23 US cents at US$76.79 per barrel, while Brent rose 20 US cents to US$79.43.

REUTERS