The Market Today

Omicron Surges, Manchin Out on BBB


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

The only economic report on the calendar today is the November Leading Index (9:000 a.m. CT).  It is expected to show an increase of 1.0% MoM.


OTHER ECONOMIC NEWS

ICYMI – December 16, 2021 Weekly Market Recap: Central bank decisions were the major focus for markets last week. The Bank of England surprised markets by raising its target rate from 0.10% to 0.25%, despite growing concerns about economic activity amid the Omicron surge of infections that have elicited new government restrictions in the U.K. The European Central Bank announced a plan to wind down its emergency asset purchase program in the first quarter, although it preserved its accommodative posture by temporarily ramping up its original quantitative easing program. The Bank of Japan, which faces a drastically different (low) inflation situation, reinforced its accommodative posture despite announcing the end of a support program for larger firms. However, the Fed’s Wednesday decision was the week’s main event. In addition to speeding up its tapering plans starting in January, the Fed retired its transitory assessment of inflation and rate expectations were significantly pulled forward into 2022 and 2023. The new dot plot included a median projection for six hikes by the end of 2023, split evenly over the next two years. September’s dot plot had forecasted just three over that period, with only a coin-flip’s chance of one in 2022. Although clearly more hawkish in the near term, rates were expected to end 2024 at 2.125%, less than two hikes from the final setting in September. While stocks rose after the decision and the yield curve steepened, those trends reversed on Thursday and Friday. Omicron still poses risks to economies at a time when current data show signs of some slowing. Global PMIs and U.S. retail sales disappointed expectations last week. For the week, the S&P 500 shed 1.9% and the yield curve fell and flattened to its second lowest level of the year. Click here to view the full recap.


TRADING ACTVITY

Cautious Start to Christmas Week; Omicron Surges and Manchin Out on BBB: Global risk markets are shedding value Monday as growth concerns continue to mount. Despite early speculation the omicron variant may be less severe, governments continue to err on the side of caution. The Netherlands went into a national lockdown Monday that will run through mid-January and Germany barred travelers from the U.K. Fed Chair Powell said at last week’s meeting the economic impact of Omicron “will depend on how much it suppresses demand as opposed to suppressing supply.” The growing virus unease occurs against a backdrop of policy pivots at some central banks (excluding China which cut a key policy rate overnight), with the Fed’s latest forecast projecting a median expectation for three rate increases next year, up from even odds of a single hike in September’s forecast. Adding to Monday’s market uncertainty, Senator Manchin, whose support Democrats must have for any legislation to pass through the Senate, said he won’t support the $1.75 trillion Build Back Better spending plan. At least one of the major Wall Street banks lowered its 2022 growth forecast in response and said Manchin’s decision poses risks to its call for the Fed to raise rates in March. U.S. stock futures were down more than 1% at 7 a.m. CT as losses piled up around the world. Treasury yields were steepening lower as various swaps markets lowered expectations for Fed tightening. The 2-year Treasury yield was 3.2 bps lower at 7:15 a.m. CT, the 5-year yield was down 3.4 bps to 1.14%, and the 10-year yield was trading at 1.38%, a 1.9-bp drop from Friday’s close.


CORONAVIRUS UPDATE  Vining Sparks Coronavirus Chartbook and Vining Sparks Coronavirus State Charts


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