The Market Today

Markets Breathe Easier on Initial Omicron Data

by Craig Dismuke, Dudley Carter


Labor Costs Rising Perilously Quickly: Unit labor costs in 3Q were revised up from 8.3% to 9.6% QoQ, ann. as output fell 5.2% but hours worked and compensation per hour rose.  Hours worked rose 7.4% QoQ, ann. while compensation per hour rose 3.9% QoQ, ann.  The productivity and unit labor costs figures tend to be volatile during the throes of an economic cycle.  However, the broader divergence between rising unit labor costs and still-low Fed Funds highlights the urgency of finding some relief in the supply chain and labor market.

Trade Balance to Boost 4Q GDP: As expected after the goods-only trade data, the October trade deficit fell $14.3b to $67.1b.  Imports rose $2.5b for the month, but exports climbed a record $16.8b (8.2% MoM).  Exports were boosted by outsized increases in the flow of goods to Canada, China, and the EU. The decline in the trade deficit is now expected to make a meaningful contribution to the 4Q GDP tally.

Consumer Credit: The October consumer credit report is expected to show credit expand $25.0b (2:00 p.m.)


Risk Assets Ripped Monday as Preliminary Hospital Data from South Africa Calmed Nerves: Risk appetite came back strongly Monday after preliminary data from South Africa over the weekend showed hospitalizations remained subdued despite the omicron-related surge in cases, furthering hopes from early anecdotes that the more transmissible variant may not be more severe. The Dow rallied 1.9%, more than unwinding last week’s decline. The Nasdaq gained 0.9% while the S&P 500 jumped 1.2%. Industrials led the S&P 500’s broad-based gains as airlines jumped more than 5%. Consumer services also rose sharply, notching a 3.6% advance. The S&P 500’s energy sector benefitted from crude prices rallying roughly 5% to send U.S. WTI back close to $70 per barrel. The financials sector was the seventh best performer, adding 1.4% as the Treasury curve recovered higher and steeper. The 2-year yield added 4.4 bps to 0.63%, within 1 bp of its cycle high, as the rate path implied by fed funds futures repriced higher following Friday’s decline. The 5-year yield rose 7.4 bps to 1.21% while the 10-year yield added 9.1 bps to 1.43%.

Markets Mending: The market’s tone continued to improve overnight, lifting foreign equities and fueling further gains for U.S. futures and crude oil. Treasury yields extended Monday’s climb but were unwinding a portion of the curve steepening that had pulled the 2-year to 10-year yield spread up from the lowest level in more than a year. Australian yields were leading Tuesday’s global rise after its central bank said in its policy statement that omicron “is not expected to derail the recovery” and indicated it will review its quantitative easing program in February. Chinese equities are Tuesday’s laggards despite imports and exports beating expectations in November and top government officials jawboning about supporting the economy next year. Germany’s industrial sector had picked up in October but a current assessment in a December confidence survey slid back into negative territory and to a six-month low, highlighting the near-term headwinds from the ongoing virus wave and new restrictions. At 7:35 a.m. CT, the 2-year yield had risen 4.4 bps to 0.68%, a new cycle-high, ahead of today’s 3-year Treasury note auction. The 5-year yield was 3.4 bps higher at 1.24% and the 10-year yield had added 1.4 bps to 1.45%.

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The absence of a surge in hospitalizations in South Africa since the emergence of omicron boosted the market’s spirits Monday. However, elevated cases continued to lead to new restrictions in some places. Reports indicated that UBS had instructed European employees to forego business-related travel. France closed night clubs for the next four weeks and asked businesses to allow workers to work from home. However, the government said it would not implement a new lockdown. In the U.S., Ford pushed back plans to bring salaried employees back into offices until at least March and New York City announced new measures. The city’s mayor announced that private businesses must require workers to be vaccinated. Additionally, full vaccination will also be a prerequisite for patronizing a restaurant, including children between 5 and 11 years old, and fitness centers.

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
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