Stocks are shrugging off pandemic fears, and investors are now watching the European Central Bank very closely.
After falling recently due to the resurgence of Covid-19 cases and concerns about the more contagious Delta variant threatening the recovery, stocks are finally climbing back up in Asia on Thursday.
Indeed, investors have chosen to put aside health concerns and are now hanging on the ECB‘s every word in hopes of getting assurances that political support will not tarnish.
The MSCI index, the index that encompasses the majority of Asia-Pacific stocks outside of Japan, followed Wall Street‘s rise and was up 1% with big gains coming from Sydney (.AXJO), Seoul (.KS11) and Hong Kong (.HSI). In Japan, markets are closed until Monday.
Like Friday’s and Monday’s declines, this rise in Asian stocks has no catalyst, but could be related to the release of study results showing that Pfizer and AstraZeneca vaccines were effective against the Delta variant of the coronavirus.
“From time to time, investors look for reasons to take some profits and that’s what we saw,” Jun Bei Liu, portfolio manager at Tribeca Investment Partners in Sydney, told Reuters.
“The market has suddenly become concerned about the delta variant and how it could affect the path to recovery,” she added. “But what we have compared to 12 months ago is quite a few viable vaccines… Eventually, we’re going to come out of this and we’re much closer to the end than we were 12 months ago“.
On the currency side, the U.S. dollar is still showing its resilience, settling at 92.812, after hitting a three-month high of 93.194. The euro held just above its recent low at $1.1791.
“The dollar has traded in the forefront regardless of fluctuations in risk sentiment in recent days“, Westpac analysts said in a note, buoyed by the idea that high inflation could lead to rate hikes in the United States.
So investors are waiting for upcoming announcements from the European Central Bank, and its president Christine Lagarde sparked anticipation after announcing an adjustment to the bank‘s key rates to reflect a new, more flexible strategy for targeting inflation.
“To really build credibility, the ECB could tie its rate path to an explicit calendar date – for example, no rate hike until the end of 2024“, said Luke Suddards, strategist at Pepperstone. “This would be a dovish surprise for foreign exchange markets and would put pressure on euro crosses“.
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