African Reserves Loans

Stocks to rebound on Omicron hopes and oil rally


MARKET ENVELOPES

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Manufacturing orders / turnover in Germany; Retail sales in Italy; UK Car Registrations, Construction PMI, Household Finances Review, CBI Economic Forecasts; meeting of the Eurogroup of euro area finance ministers; no major company update is expected

Opening call:

Allaying fears about Omicron’s seriousness should help fuel a rally in European equities on Monday. In Asia, the mood was more cautious, with mixed benchmarks. Elsewhere, oil recovered after the Saudis raised prices; the dollar and treasury yields gained; and gold has changed little.

Actions:

European stocks are set for a good start, with hopes that Omicron does not fuel a spike in serious Covid-19 infections and a rally in crude prices that could boost morale.

Investors should welcome the results of a recent study which found that Omicron could cause less severe Covid-19. The small study of people hospitalized during the current Omicron outbreak in South Africa found a milder disease pattern than in previous waves of Covid-19, although the authors, and scientists more broadly, have warned that it was too early to say for sure whether the new, fast-spreading strain is less virulent than its predecessors.

And on Sunday, Dr Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told CNN that health experts were studying the variant to learn more about the severity of the disease it causes. “So far, although it is too early to really make definitive statements on this matter, it does not appear that there is a great degree of severity,” he said.

Shares were mixed in Asia on Monday, with Evergrande falling more than 10% following the real estate developer’s warning of possible cross defaults on its dollar bonds after being asked to repay $ 260 million in debt. . Losses in the region were contained, however, helped by the rise in US equity futures.

“The driving force behind the return to the jigsaw of omicron’s featured tennis service comes from South Africa, where a South African Medical Research Council article suggests that omicron’s symptoms were milder than previous incarnations,” most inpatients with co-morbidities, ”Jeffrey wrote. Halley, Senior Market Analyst, Asia Pacific, OANDA.

“Sure, the sample size is small, but the markets never let ‘the data’ get in the way of storytelling. Smoother Omicron variant = U-turn = buy everything.”

Forex:

The dollar held up in Asia as an Omicron variant and the outlook for a possible Fed tightening raises concerns about global growth.

Despite Friday’s payroll report, Jonathan Petersen of Capital Economics said that “the bigger picture remains that sustained inflationary pressures in the United States are likely to favor a more rapid normalization of policy by the Fed and keep the dollar strong “.

USD / JPY fell amid concerns over Omicron and the pair could continue lowering to 112.00 this week, Citi said. Still, aggressive bets against the USD / JPY might not be safe because concerns about inflation may prompt the Fed and other central banks outside of Japan to tighten their policies and because the prolonged disruption in the supply chain The supply is likely to delay the recovery of Japan’s trade balance due to exports, Citi added.

The pound sterling stabilized somewhat in Asia after falling on Friday as investors recoiled on their expectations of an interest rate hike at the Bank of England meeting on December 16. This followed remarks from policy maker Michael Saunders, BMO Capital Markets said. Saunders suggested the BOE should delay lift rates until it understands Omicron’s impact.

But BMO forex strategists have said the BOE may have to hike rates more significantly in the first quarter to curb inflation if it holds fire in December. “As such, our current preference would be to look for a short term GBP / USD buying opportunity at the low of 1.30.” For EUR / GBP, there are short-term selling opportunities in the 0.8550-0.8575 range, strategists said.

Chinese Premier Li Keqiang’s recent remarks at the IMF imply that a targeted reduction in the reserve requirement ratio is very likely in the near term, Goldman Sachs said. Prime Minister told IMF Managing Director Kristalina Georgieva in a video meeting on December 3 that Beijing will reduce the RRR [which regulates how much cash banks hold as reserves] where appropriate, to increase support for the real economy and in particular for small businesses.

The net impact on liquidity may depend on the central bank’s full renewal of its medium-term lending facility on Dec. 15, when 950 billion yuan of loans will mature, Goldman Sachs added.

Obligations :

Yields on U.S. government bonds rose in Asia after investors pushed them to multi-month lows on Friday following employment data.

Yields fluctuated between highs and lows after the data, but started to move lower later in the session. While the number of flagship jobs have fallen short of economists’ expectations, some analysts and investors have said that rising labor market participation and falling unemployment rates are positive signs for the recovery in the economy. United States and should not change expectations about the pace of reduction in the Fed’s pandemic stimulus. measures and raise interest rates.

“The market read past the original issue and then saw that some of the details were actually correct,” said Gennadiy Goldberg, senior US rates strategist at TD Securities.

Faced with the highest inflation in decades, many investors are betting that the Fed is poised to raise short-term rates above their current near-zero level next year. The yield on two-year Treasuries, which often climbs when investors anticipate a tightening of central bank policies, ended Friday at 0.589%, down from around 0.27% at the start of October.

Commerzbank said the Fed will likely speed up the cutback process at its mid-December meeting and end buying in March despite the below-expectations jobs report.

Senior economist Christoph Balz said that while the 210,000 jobs created seemed small, the details in the report were much better and signaled that the labor market continues to recover. The emergence of the Omicron variant poses a risk, but the recovery is not expected to be in jeopardy as recent waves of new infections have had less and less of an impact on the economy, Balz added.

“The final impulse [for the Fed] November consumer prices are likely to come on Friday. The inflation rate is probably at its highest level since 1982. ”

Fixed-income investors face a tough year in 2022 to generate total returns – which include both capital gains and income – as central banks begin to remove pandemic-era stimulus measures, Colin Finlayson, who co-manages the £ 437million Aegon Strategic Global Bond fund, told Dow Jones Newswires.

He predicts that government bond yields will rise next year and that corporate credit spreads will widen from current levels as central banks globally reduce quantitative easing and start raising rates. interest. This environment is not particularly favorable for government and corporate bonds, especially quality corporate bonds, given their already fairly high valuations, Finlayson said.

Energy:

Oil prices rose more than 2% in Asia, taking inspiration from higher official selling prices set by Saudi Aramco.

“This move suggests that the Saudis have confidence in the outlook for demand, and the market seems reassured,” ING said, noting that the state-owned oil exporter has increased its PSOs for all grades. crude oil in Asia for January, with its flagship Arab Light grade of $ 0.60 / bbl over the month at $ 3.30 / bbl above the Dubai-Oman benchmark.

Oil futures ended on a mixed note on Friday, but suffered their sixth consecutive weekly decline – the longest string of declines in three years – as the emergence of Omicron threatened the outlook for demand for oil. ‘energy.

“In a half-full glass version, if the virus is found to be less virulent than the Delta variant with current vaccinations remaining effective, the ongoing economic recovery could help price pressures become more widespread,” said Mizuho Bank.

Metals:

Gold was little changed after finishing higher on Friday after disappointing US employment data.

Demand for safe-haven assets such as gold is expected to be strong in the near term amid concerns over Omicron’s impact on the global economy. “The new variant of the virus, which has meanwhile been detected in the United States as well, is currently hanging over just like the sword of Damocles,” Commerzbank said.

Copper prices have risen following signs of a supply disruption in Peru, with mining company MMG planning to halt production at its Las Bambas mine as roadblocks affect key inputs and restrict metal shipments, said ING.

Stocks of around 50,000 tonnes of copper concentrate have accumulated at the site, with operations slowing down and production slated to stop by mid-December, ING added.

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Small-cap stocks hit hard by Covid-19 Omicron variant

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Omicron may cause less severe Covid-19, small South African study finds

(MORE FOLLOWING) Dow Jones Newswires

12-06-21 0051ET