EMEA Morning Briefing: Stocks will slow down after mixed session on Wall Street


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EU Monetary developments in the euro area.

Opening call:

European stocks could open lower after hitting a five-week high on Tuesday. US equity futures are trending upward. The US dollar was unchanged. Oil is rising. Lower golden edges.

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European stocks are expected to fall at open on Wednesday as concerns over the omicron variant of the coronavirus persisted following mixed hints from Wall Street.

Stocks have been rocked by the spread of the Omicron variant in recent weeks as governments around the world have imposed restrictions in an attempt to curb coronavirus infections. But some recent studies have suggested that the variant could lead to milder illness with a lower risk of hospitalization.

The Centers for Disease Control and Prevention has reduced the recommended isolation period for some people who test positive to try to minimize disruption. Yet many economists have lowered their forecasts for economic growth in the first quarter of next year.

“While cases of omicron in the United States and Europe, among others, continue to increase, their presence has yet to be felt negatively in economic data. a smoother incarnation, despite its easier contractibility, ”said Jeffrey Halley at OANDA.

“With market activity severely reduced for the holiday season, investors continue to tentatively forecast a global recovery hitting a minor bump, not a pothole,” he said.

Stock market investors are watching a phenomenon known as the “Santa Claus Gathering”. Indexes such as the S&P 500 tend to rise in the last five days of the year and the first two days of the new year. Such a rally takes place at the end of about four out of five years, according to “Stock Trader’s Almanac”.

“It’s happening because people are starting to position themselves. People are reading everyone’s 2022 estimates and planning for next year,” said Jeffrey Meyers, consultant for hedge funds and family offices at Market Securities.

“We have had four consecutive days of upward movement,” said Sam Stovall, chief investment strategist at CFRA. “Investors are keeping their fingers crossed that we end up with a positive rally for ‘Santa Claus’.”

Forex:

The US dollar was unchanged at the start of trading in Asia as the stock market recovery after Christmas lost momentum and the outlook for the US economy improves somewhat after the CDC eased quarantine requirements for Covid-19.

This move is seen as beneficial for labor markets, which continue to face shortages. The Richmond Fed’s manufacturing survey rose to 16 in December from 12 in November. The greenback strengthens against the euro and weakens against the yen.

Asian currencies have strengthened against the US dollar, but may weaken due to a sense of risk aversion driven by losses in regional stock markets. Given the decrease in liquidity in the forex markets before the end of the year, currency movements could be exacerbated by any significant news.

For 2022, with a hawkish Fed poised to lead rate hikes, higher global yields and a stronger U.S. dollar, hot money could leave emerging market economies in the cold, Mizuho Bank said.

Obligations :

Yields on the shorter end of the Treasury curve were mostly rising as investors shed concerns about the economic impact of the omicron variant of the coronavirus and sent Dow industrialists higher than DJIA. The 2-year maturity was at a new high of 52 weeks.

Inflation is “on a plateau” and policymakers seem more aware of price increases, which should bring some degree of stability to bond markets, Louis Ricci, of Emles Advisors, told the WSJ. “In short to medium, I wouldn’t be surprised to see returns where they are or lower,” before recovering by the end of 2022, he said.

Ricci expects the 10-year Treasury yield to be 50 to 70 basis points higher in a year. He sees inflation concerns dampening the surge in government spending increases, which in turn would eliminate the need for the Fed to further accelerate monetary tightening.

Bond yields tend to rise as the economy recovers and the Fed turns off the money tap, said Louis Ricci, of Emles Advisors, although it won’t be a steady rise. “The Fed could have the opposite effect if people think the hike will slow the economy,” which could dampen returns.

Ultimately, Ricci expects the curve to steepen as the economy grows and “people are more interested in buying stocks than bonds.” The era of low interest rates is over. “We can’t have rates like these forever.”

Energy:

Oil rose during the Asian session, as demand is expected to pick up in the new year as well as lower global inventories, Mizuho Bank said.

However, the bank expects gains to be limited as global oil supply is expected to increase next year due to gradual increases in OPEC + and US production.

Mizuho added that a stronger US dollar could also weigh on oil prices, given their usual negative correlation.

Metals:

Gold edged down during the Asian session as the safe haven metal turns negative in response to the recent rally in global equity markets, DailyFX.com reported.

Although rising inflation and geopolitical factors have supported demand for gold, the “Santa Claus rally” and a stronger US dollar have hampered further progress, he said. Still, DailyFX says prices remain above the 50-week moving average, placing gold support at the key psychological level of $ 1,800 an ounce.

Copper rose in the Asian session as decarbonization trends and tightening supply could boost demand for the industrial metal next year, according to Argus Media.

Citing industry sources, the commodity price information company added that the insufficiency of new ongoing mining projects and a post-Covid-19 global recovery are other reasons for the optimism.

However, Argus said there were still uncertainties amid persistent supply chain issues and the Omicron variant, so some price volatility seems likely.

Iron ore prices are lower in Asian morning trading, extending this week’s declines ahead of the New Year’s holidays. Huatai Futures said the current weakness is likely due to an expected slowdown in downstream demand. steel products, as most construction and manufacturing activities slow down before the end of the year.

But the brokerage expects a rebound soon, given the drop in iron ore inventories which implies strong demand for restocking in the medium term.

   
 
 

MAJOR TITLES OF THE DAY

Biden considers Raskin as Fed banking regulator

President Biden is considering Sarah Bloom Raskin for a senior Federal Reserve post as part of a shortlist of three candidates for central bank board seats, according to people familiar with the matter.

The administration is considering Ms Raskin, a former Fed governor and former Treasury Department official, to become the vice president of central bank oversight, the government’s most influential supervisor of the US banking system, the officials said. people.

   
 
 

Argentine bonds rally to hopes of IMF deal

Optimism that Argentina will strike a new deal with the International Monetary Fund pushed up the country’s public debt prices by about 10% in December, analysts said.

This strong performance coincides with an unusual admission by the IMF in recent days that the previous loan program it extended to Argentina in 2018 fell short of its targets.

   
 
 

Biden’s trade policy putting workers first ranks foreign partners

WASHINGTON-President Biden’s goal of fixing frayed relations with European and Asian trading partners conflicts with his other priority of putting American workers first.

What the White House calls its “worker-centered” trade policy has led to clashes with Mexico and Canada, which have opposed the administration’s plan to give higher tax credits to electric vehicles built by American union workers.

   
 
 

US home price growth slowed further in October

Home price growth in the United States slowed for the second consecutive month in October, an indication that the hot housing market could start to cool.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas nationwide, rose 19.1% in the year ending October, against 19.7% the previous month.

   
 
 

Flight cancellations remain high today as airlines accept shorter quarantine periods

U.S. airlines continued to cancel flights at high levels on Tuesday as the combination of staff shortages caused by Covid-19 and weather issues impacted the end of the holiday travel season.

The number of flights cleaned was on track to match that at the start of the week, with more than 1,100 canceled as of late Tuesday afternoon, according to data tracker FlightAware. As of Monday, nearly 1,500 flights to and from the United States were canceled as airlines faced bad weather in the Pacific Northwest and parts of the Midwest.

   
 
 

Stock pickers struggle to beat the market

It was supposed to be a stock picking market.

A late-2020 rally of smaller, cheaper stocks, culminating with the same equity craze that began in January, raised hopes that active investing would make a comeback this year. But as 2021 draws to a close, most professional stock pickers find themselves on familiar ground: behind the benchmark S&P 500.

   
 
 

US Treasury yields seem like a one-way bet, until they aren’t

It can be difficult to understand why long-term US Treasury yields are so low. But after so many years where yields were, in retrospect, too high, it’s understandable why investors might be reluctant to bet on them rising.

(MORE FOLLOWING) Dow Jones Newswires

December 29, 2021 00:23 ET (05:23 GMT)

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