The Market Today
Quiet Start to the Week, Omicron Remains in Focus
by Craig Dismuke, Dudley Carter
There are no economic reports on the calendar today.
Omicron Driving Worries: U.K. Prime Minister Johnson held off on implementing new restrictions on Monday but said “we will not exclude going further if we have to do things to protect the public.” The Netherlands entered a national lockdown on Monday that will last until the middle of next month. Germany is reportedly considering tightening restrictions after Christmas, which may include limiting gatherings to 10 people and closing nightclubs. London cancelled a New Year’s Eve event in Trafalgar Square and Portugal called an emergency meeting of cabinet officials to discuss possible containment measures. In the U.S., Washington D.C. reimposed an indoor mask mandate and Bank of America told staff in their New York City offices they could work from home over the holidays. President Biden is expected to discuss U.S. containment measures in a speech later today. On a more positive note, cases in South Africa have rolled over in recent days with fatalities still sharply lower than previous waves. Moderna confirmed early indications that a booster of its vaccine reinvigorated protection against Omicron and the EU approved the Novavax vaccine.
OTHER ECONOMIC NEWS
Updated Economic Forecast: Vining Sparks published the December economic and interest rate projections Monday which includes results from the latest Bloomberg Survey of Economists. Click here to view the latest forecast. In our revisions, we lowered the short-term GDP outlook due to hotter-than-expected inflation. We also lowered our unemployment rate projections as people have not returned to the labor force as quickly as expected. On the interest rate front, we brought the first rate hike into 3Q22, followed by a second hike in 4Q22. We raised our 2-year Treasury yield projections given the faster takeoff and lowered the 10-year yield projections.
Omicron Weighs on Sentiment Monday: Global markets stumbled into a holiday-shortened trading week amid concerns about the Omicron variant’s impact on the global recovery. While early health data indicate the variant may produce milder health consequences, health officials continue to stress it’s too early to say definitively and governments have implemented restrictions to mitigate the risk. The uncertainty comes just as some major central banks, including the Fed, shift towards tightening policy to deal with strong inflation. Adding to growth concerns, prospects for the President’s $1.75 trillion BBB bill took a hit after Senator Manchin said over the weekend he wouldn’t support the bill. The combination struck a nerve Monday, pushing major global equity indices down more than 1%. In the U.S., the S&P 500, Dow, and Nasdaq all declined around 1.2%. While nine of the S&P 500’s eleven sectors pulled back, the losses were more severe for those most closely tied to the economy’s performance. The weakness in sentiment knocked oil prices sharply lower and initially drove Treasury yields down across the curve. While the trend was still for a flatter term structure, yield levels closed up notably off session lows. After falling below 0.59% during European trading, the 2-year yield slipped just 0.6 bps to 0.63% as markets trimmed bets for future Fed tightening. The 10-year yield added 2.0 bps to 1.42%, bouncing from an intraday low of 1.35%.
Markets rebounded overnight after a Scrooge-like start to the Christmas trading week, sending global equities, oil prices and sovereign yields all higher. Japan’s Nikkei 225 jumped 2.1% to lead a strong day across Asia and Europe’s Stoxx 600 was 1.2% higher. The firmer global backdrop helped lift U.S. futures around 1% before 7 a.m. CT. Tech stocks, particularly shares of semiconductor producers, were leading the global charge after Micron Technology, a major U.S. chip producer, reported financial results and delivered forward guidance after Monday’s market close that beat expectations. U.S. stocks were further boosted by pre-market gains for Nike following its estimate-topping earnings results. With equities on the mend, sovereign yields rose sharply across Europe and Treasury yields were higher. The 2-year Treasury yield had risen 1.8 bps to 0.65% at 7:30 a.m. CT while the 10-year yield was 3.1 bps higher at 1.45%, trailing increases of around 5 bps for 10-year yields across Europe.