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Marketmind: Party like it's 2022

Marketmind: Party like it's 2022
Marketmind: Party like it's 2022   -   Copyright  Thomson Reuters 2022
By Reuters

A look at the day ahead from Julien Ponthus

While many New Year Eve celebrations across the world were scaled down or cancelled due to the surge of the Omicron coronavirus variant, financial markets had a party of their own on the first day of trading of 2022.

A new record high was set on Monday for the pan-European STOXX 600 and on Wall Street, the S&P 500 and the Dow Jones closed at historic peaks.

The euphoria surrounding stocks was best captured by Apple hitting $3 trillion of market capitalization, which is well above the combined value, for instance, of all the blue chips listed on London’s FTSE 100.

U.S. Treasury yields also surged as the optimism for the economic recovery had some investors bracing for earlier-than-expected interest rate hikes by the Federal Reserve.

Yields on U.S. 2-year notes, sensitive to rate hike expectations, soared to their highest since March 2020, when the pandemic triggered market turmoil.

Other asset classes also enjoyed the risk-on mood such as oil, which rose on hopes of further demand despite OPEC+ looking set to agree to another output increase.

Simply put, there’s a bullish consensus that the unprecedented wave of COVID-19 infections won’t derail the global recovery and that vaccines will prevent the need for stringent lockdowns.

Of course, this narrative can be seen as a leap of faith on the supposed milder nature of Omicron and that other factors at play, such as inflation, a policy mistake or politics don’t suddenly rock the boat.

In the meantime, Asian stocks were upbeat on Tuesday and European and U.S. stock futures point to another session of gains.

China Evergrande’s shares jumped as much as 10% in resumed trade after the developer said a government order to demolish 39 buildings on the resort island of Hainan would not affect the rest of its project there.

And data showing China’s factory activity growing at its fastest pace in six months in December and German sales unexpectedly rising in November could fuel further optimism.

Key developments that should provide more direction to markets on Tuesday:

—German retail sales rebound in November

—Switzerland, France CPI data

—UK mortgage data

—Oil prices edge higher ahead of OPEC+ output policy meeting Graphic: Apple’s soaring stock market value, https://fingfx.thomsonreuters.com/gfx/mkt/myvmnbokapr/Pasted%20image%201641236583881.png