While the dollar, oil prices and benchmark government bond yields all made early moves higher, world stock markets got off to a lively start to 2022 on Monday after their third consecutive year of double-digit gains.
Traders in the United Kingdom's capital London were enjoying their final day of festive rest, but shares in mainland Europe hit all-time highs on Monday, starting the year in an upbeat mood with hopes of steady economic recovery despite a surge in COVID-19 cases due to the omicron variant.
Europe saw a lively start, with the STOXX 600 index notching up a quick record high after a flurry of encouraging data from the eurozone and eastern Europe.
The euro zone's Manufacturing Purchasing Managers' Index (PMI) dipped to 58 in December from November's 58.4, but it matched an initial "flash" estimate despite a recent surge in coronavirus infections and was still comfortably above the 50 mark separating growth from contraction.
"We're seeing some tentative but very welcome signs that the supply chain crisis (that) has plagued production lines all across Europe is beginning to recede," said Joe Hayes, a senior economist at IHS Markit that compiles the PMI survey.
The data also showed firms' stocks of purchases rising at a survey-record rate in December. That meant the input prices index sank to a high eight-month low, even though it remains relatively high, allowing factories to raise their prices at a much slower pace.
"Easing inflation rates are again a welcome sign, but we're still in hot territory," Hayes added.
As trading settled, stock markets in Germany, France, Italy and Spain rose between 0.8% and 1.1%, and 10-year German government bond yields – the benchmark for European borrowing costs – were up 4 basis points at their highest level since November.
The prospect of higher rates lifted eurozone bank stocks by 1.2% while carmakers were up 1.8% after both Tesla and Hyundai had issued bullish targets for this year.
In the currency markets, the eurozone data failed to lift the euro as the focus remained on how much further the dollar could rise if the Federal Reserve hikes the United States interest rates several times this year, as is currently expected.
Oil rose towards $79 a barrel on Monday, supported by tight supply and hopes of further demand recovery in 2022 spurred in part by a view that the omicron coronavirus variant is unlikely to shut down the global economy again.
OPEC and its allies, known as OPEC+, are expected to stick to a plan to raise output gradually at a meeting on Tuesday.
Brent crude, which leaped 50% last year and is up 80% from the COVID-triggered lows of 2020, rose 1 cents, or 1.3%, to $78.86 a barrel. U.S. West Texas Intermediate (WTI) crude added $1.03 or 1.4%, to $76.24.
"Infection rates are on the rise globally, restrictions are being introduced in several countries, the air travel sector, amongst others, is suffering, yet investors' optimism is tangible," said Tamas Varga of oil broker PVM.