We start this week in a risk off mood amid rising global omicron infections and turmoil for Joe Biden’s economic agenda, causing selloffs in stocks, equity futures and oil, while supporting sovereign bonds. Fresh restrictions in parts of Europe to stem the rapid spread of omicron are rattling investors.US lockdowns likely won’t be necessary, but hospitals are strained. Separately, Goldman Sachs Group Inc economists reduced their US growth forecasts after Senator Joe Munchin rejected Biden’s $2 trillion tax-and-spending package. Crude oil slid, commodity-linked currencies struggled, while Turkish lira tumbled to another record low after Erdogan pledged to continue cutting interest rates. Data calendar looks light today with US CB Leading Index being the highlight.
US equities finished lower on Friday posting losses on weekly basis amid increased volatility. Dow Jones tumbled 1.5% to 35,365, the S&P 500 Index declined 1% to 4,621 and the NASDAQ traded 0.1% lower to 15,170. Uncertainty regarding the ultimate impact of the omicron continued to affect the sentiment, while investors began to process the Fed and BoE starting to back away from the easy monetary policies of the past two years. In corporate news, FedEx gained ground following its earning results, but Darden Restaurants slipped despite topping Q2 expectations and General Motors fell after announcing the CEO if its autonomous driving unit, Cruise, has left the company. Early Monday yields on US 10-year notes were down at 1.38% and well below their 2021 top of 1.776%. The Fed’s hawking turn combined with safe-have flows underpinned US Dollar with DXY reaching the level near its best for the year at 96.674, following 0.7% jump on Friday.
European stock markets have opened sharply lower this Monday with DAX futures losing 2%, CAC 40 dropping 1.7% and FTSE 100 futures falling 1.2%. Countries are starting to react to surging Omicron-variant Covid-19 cases with tighter mobility restrictions, potentially damaging the region’s economic recovery. The Neverlands went into full lockdown on Sunday with all but essential stores closed at least until January 14. Sajid Javid, UK health minister refused to rule out on Sunday tougher restrictions before Christmas. The Euro is trading around $1.1237, having lost 0.8% on Friday and near its low of $1,1184 for the year. Sterling is down at $1.3224 as Omicron worries erased all the gains made following the BOE surprise rate rise last week.
Asian equity markets fell this morning with Japan’s Nikkei dropping 1.7%, South Korean stocks losing 1.2%, Chinese blue chops dipping 0.4%, while MSCI’s index of Asia Pacific shares outside Japan falling 0.8%. Beijing lifted the sentiment slightly by cutting one-year loan rates for the first time in 20 months, though some had hoped for an easing in five-year rates as well.
Oil prices slumped 3% on Monday with Brent Crude loosing 2.9% to $71.38, while WTI crude fell 3.5% to $68.41. The surging cases of the Omicron coronavirus variant in Europe and US stocked investor worries that new restrictions on business to combat its spread may hit fuel demand.