Investor sentiment over the past three trading sessions caused indexes to fall as there were concerns about President Joe Biden's economic agenda. Investors also worried about the surge in the Omicron coronavirus variant. According to traders, lower trading volumes due to the start of the holiday season also exacerbated market moves. As a result, stocks experienced their biggest shock of the past year.
S&P500's sharp correction ends due to traders
The S&P 500 Index has seen its biggest drop since September in the last three trading sessions, driven by falling financial and material values. Bonds have fallen, though the dollar has changed little.
Chief executive officer of an investment firm Jay Hatfield said during this decline that two dynamics were going on and the most significant one was probably the inevitable decline in liquidity. He added that they were tackling a problematic issue of the Omicron variant.
Goldman Sachs Group Inc. economists once again cut their US GDP forecasts after Democratic Senator Joe Manchin double crossed the White House on a congressional vote rejecting Biden's nearly $2 trillion tax and spending package.
Meanwhile, Europe's largest countries are facing more restrictions due to the Covid-19 pandemic.
Markets are recovering
As early as Tuesday, global stocks rose during the European session as investors estimated the extent to which the Omicron coronavirus variant would hit the global economy. The dollar is weakening as investors' drive for riskier assets is making their first profit since the collapse. During the European session, investors were cautiously optimistic that the economic blow would be less severe this time. They bought stocks and sold safe havens like the US dollar and Japanese yen.
The broader EuroSTOXX 600 went up 1.1%. The German DAX added 0.8% and the London FTSE climbed 0.9%. A rebound is highly possible in the US session as well.
Senior portfolio manager at Unigestion Olivier Marciot said that it was an attempt to gauge the extent to which the Omicron variant will cause uncertainty.
Semiconductor and chip stocks were in the focus again. Shares of ASML Holding, ASM International and STMicroelectronics added about 2% after positive trading news from US chipmaker Micron Technology.
Marciot believed that despite having an impact on daily life and the economy for a few weeks, this issue would not cause a global slowdown.
The MSCI World Stock Index, which tracks stocks in 50 countries, added 0.4%.
US stock futures rose by 0.6% after news of a failed vote on the Biden package.
Amid low trading volumes ahead of the year-end weekend, the broadest index of Asia-Pacific stocks outside Japan went up 1% after falling on Monday to its lowest level in a year.
Senior market analyst Jeffrey Halley said that December meant volatility, not the direction of market trends. He pointed out that trading was actually ending.
SOFT DOLLAR
The US dollar index, measuring the value of the dollar against a basket of currencies from other major trading partners, fell by 0.2% to 96.493.
The US dollar declined below recent highs on Tuesday, losing ground overnight due to a blow to Democratic spending plans in Washington. However, concerns about the Omicron coronavirus variant are hindering the risk currency.
The US dollar index, which measures the currency value against six major currencies, was last at 96.513, losing ground on both the euro and the yen.
Two-year USTreasury bond yields hit 0.5870% on Monday, the lowest level since December 3, which also increased the steepness of the yield curve.
The Japanese yen, which is often sold when risk appetite rises and is hoarded as a safe haven, rose to 113.7 per $1.0.
The Turkish lira gained momentum, rising by 16% after an all-time 25% rise a day earlier from record lows after President Tayyip Erdogan unveiled a plan that he said would safeguard local currency deposits from market fluctuations. However, later it hit lows again.
The Australian dollar was weak at $0.71055, while the New Zealand dollar tested a 13-month low at $0.6709.
Cryptocurrencies, which are often a reliable indicator of risk sentiment, gained. Bitcoin added more than 4% after a downward trend in recent weeks, while ether, the second-largest coin, climbed 2%.
Oil prices have started to recover on concerns that the spread of the Omicron variant will reduce demand for the fuel and there are signs that supply will improve.
US crude oil rose by 0.4% to $68.85 a barrel. Brent crude oil increased slightly to $71.85 a barrel.
UK fluctuates
British stocks rebounded on Tuesday, primarily due to commodities and tourism stocks, though investor fears remain in the region.
The FTSE 100 blue-chip index and the mid-cap domestic-focused index went up 0.9% each.
Oil largest companies BP and Royal Dutch Shell added nearly 1% each, tracking higher crude oil prices, while industrial miners rose by 2.4% due to higher copper prices, caused by a weaker dollar and concerns about supply shortages.
The travel and leisure sector went up 0.8% after falling 0.7%in the previous session.
Britain's FTSE 100 blue-chip index has added 12.5% this year, however lags its European and US rivals as the benchmark index consists of the majority of sectors hit by the pandemic most, such as energy and banks.
Nevertheless, the pound fell to $1.3204 after British Prime Minister Boris Johnson said Monday that he would tighten Covid-19 measures if necessary to reduce the spread of the Omicron variant.
What report are significant to track this week:
- EIA oil inventory report will be released on Wednesday;
- US consumer income, new home sales, US durable goods, University of Michigan consumer sentiment, initial jobless claims will be issued on Thursday;
- markets close release will be published on Friday.
