MARKET WRAPS
Watch For:
Euro area balance of payments; Bundesbank monthly report.
Opening Call:
European stock futures point to steep losses at the open as omicron and central bank moves weigh on investors' minds. U.S. stock futures fell sharply. Dollar steady, Asian currencies weaken against dollar on risk-off sentiment. 10-year Treasury yields fall slightly. Oil slides. Gold edges higher.
Equities:
European stocks are set to fall sharply Monday following a losing week on Wall Street amid worries about Fed policy and the fast-spreading omicron variant of COVID-19.
Last week's losses came as investors weighed the U.S. Federal Reserve's hawkish pivot, speeding up its reduction of monthly bond purchases and predicting three interest-rate hikes next year.
On Sunday, President Joe Biden's signature $2 trillion spending plan appeared doomed as Sen. Joe Manchin, D-W.Va., said he cannot support it - potentially handing Biden and Democrats a major political loss.
Meanwhile, new COVID-19 cases are growing sharply in many parts of the world, fueled by the rapid spread of omicron. Dr. Anthony Fauci said Sunday that he expects record cases of COVID-19 this winter, and urged people to get vaccinated and get boosters.
Wall Street has a shortened week coming up, with markets closed Friday for the Christmas holiday.
Forex:
Asian currencies weaken against U.S dollar in morning Asian trading due to risk-off sentiment spurred by regional equity-market losses and concerns over the spread of the Covid-19 Omicron variant.
Volume may be relatively light in this holiday-shortened trading week, running the risks of exacerbating any sell-off, IG said.
The euro will weaken against the dollar next year as global liquidity conditions tighten and the Fed raises interest rates before the European Central Bank, Danske Bank said.
In 2022, the Fed will finish asset purchases in the first quarter and look to start raising rates, Danske Bank analyst Lars Merklin said. "This will continue to shift the market's attention towards USD on a theme of monetary divergence vis-a-vis EU."
The U.S. will likely attract capital as a higher interest-rate market with equities appeal to investors, lifting the dollar, he said. A slowing manufacturing cycle will also weigh on EUR/USD, Merklin said. Danske Bank expects EUR/USD to fall to 1.10 in the coming 12 months from 1.1284 currently.
Bonds:
Alternative credit assets like asset-backed securities and collaterised loan obligations look appealing, said Chris Iggo, chief investment officer for core investments at AXA Investment Managers.
"Credit quality is good, spreads on these instruments are attractive relative to fixed-rate bonds and they have no duration exposure," he said. Leveraged loans, CLOs, small-cap equity and China top the ranking of asset classes scored by the asset manager's portfolio management teams based on a macro, valuation, sentiment and technical framework, he added. Duration is a measure of the sensitivity of the price of a bond to a change in interest rates.
Energy:
Oil slid in morning Asian trading amid growing concerns over the spread of the Covid-19 Omicron variant. The current surge in the virus is likely to lead to some Americans canceling holiday travel plans, Oanda said, adding that Covid news may continue to be a drag for oil prices for the rest of this year.
Metals:
Gold edged higher in Asian trading, continuing its post-FOMC rally supported by a weak U.S. dollar and signs of year-end risk hedging from investors, Oanda said.
"As ever, though, the rally overnight has more than a small hint of desperate fast-money to it," Oanda said. "The jury is still out on whether the rally is sustainable," Oanda adds, putting resistance at $1,810 an ounce followed by $1,820 an ounce.
Aluminum fell in early Asian trading, snapping a two-day rally that was driven by rising power prices in China, Marex said. Electricity costs in China are down 2.0% from a week ago amid lower thermal coal prices, it said.
Costs of alumina, another key input, have also fallen 6.4% from the previous week due to increased production, which is adding to the downward pressure on the industrial metal, Marex said.
TODAY'S TOP HEADLINES
China Central Bank Cuts Loan Prime Rate for First Time in 20 Months
China's central bank cut the one-year loan prime rate amid a slowing economy that has been dragged by a slump in the property sector.
The one-year LPR was lowered to 3.80% from 3.85% and the five-year LPR remained at 4.65%, the People's Bank of China said Monday.
Economy Week Ahead: Housing, Consumers, Inflation
U.S. consumer spending and inflation data highlight this week's economic calendar.
Central Banks Worry Omicron Could Sustain Inflation
The Omicron variant is circling the globe, closing borders and sparking new restrictions on economic activity. Yet central banks, instead of loosening monetary policy to prop up their economies as they did at the start of the pandemic, are moving to unwind stimulus and raise interest rates.
The moves reflect a new thinking among policy makers about the pandemic's economic effects: Central-bank officials worry that rather than simply threatening to curtail economic growth, a surge in Covid-19 cases could also prolong high inflation.
Sen. Joe Manchin Says He Won't Vote for 'Build Back Better' Bill in Blow to President Biden
WASHINGTON-Sen. Joe Manchin (D., W.Va.) said he would oppose his party's roughly $2 trillion education, healthcare and climate package, likely dooming the centerpiece of President Biden's economic agenda as currently written.
"This is a 'no' on this legislation," Mr. Manchin said on Fox News Sunday. "I have tried everything."
In China, Job Cuts Mount in Sectors Hit by Tighter Regulations
Chinese companies are laying off tens of thousands of workers as Beijing's regulatory clampdowns weigh on the technology, education and property sectors, which in many cases offered higher salaries than other industries and helped drive economic growth.
Video-streaming services are cutting staff. Companies that offer tutoring are reducing teachers and shutting down apps, and real-estate agents have been let go as China's housing market slows.
Business Lobby Seeks to Delay Tax Rise That Funds Biden Spending Plan
WASHINGTON-A coalition of large multinational companies has launched a late lobbying blitz to delay a tax increase on foreign earnings in the Build Back Better plan, saying it would hurt U.S. businesses when they compete with foreign rivals.
The dispute represents another potential stumbling block for President Biden's top domestic-policy priority, which relies on corporate tax increases to fund greater spending on education, child care, healthcare and other domestic programs.
Sky-High Lumber Prices Are Back
Lumber prices have shot up again in a rise reminiscent of a year ago, when high-climbing wood prices warned of the hinky supply lines and broad inflation to come.
Futures for January delivery ended Friday at $1,089.10 per thousand board feet, twice the price for a prompt delivery in mid-November.
Inflation Adds to Cost of Clean Energy Transition
Energy companies have to spend more to build solar and wind farms for the first time in years because of cost inflation and supply-chain problems, adding a financial speed bump to the switch from fossil fuels.
Clean-energy projects are exposed to inflation in old-school commodity markets by their dependence on materials such as silicon and copper. The wholesale price of solar panels has risen 19% in Europe this year, according to Martin Schachinger, managing director of pvXchange Trading GmbH, taking them to levels from late 2018. Prices remain about a third below where they stood five years ago.
Rio Tinto Names Dominic Barton, Canada's Ambassador to China, as Chairman
ADELAIDE, Australia-Rio Tinto PLC said Dominic Barton, Canada's ambassador to China, would become its chairman as the mining company strives to repair damage to its reputation from the destruction of two ancient rock shelters in Australia last year.
By selecting Mr. Barton, who will succeed Simon Thompson in May, Rio Tinto is hoping that a diplomat's skill set can help it to navigate challenges that include rising resource nationalism in some key markets and demands from investors for mining companies to more aggressively address the environmental impact of their operations. Rio Tinto also makes most of its earnings in Australia, which is locked in a trade and diplomatic dispute with China.
Bank of Montreal Is in Advanced Talks to Buy BNP Paribas's U.S. Unit
Bank of Montreal is in advanced talks to buy BNP Paribas's U.S. unit, Bank of the West, in what would be one of the largest recent bank deals.
The Canadian bank could finalize an agreement as soon as this week, according to people familiar with the matter, assuming the talks don't fall apart or get delayed.
Omicron Prompts New Covid-19 Restrictions
New restrictions were set in place in Europe in an effort to stem the spread of the Omicron variant of the coronavirus as a top U.S. health official warned that the variant is likely to strain American hospitals in the coming weeks.
The rapidly spreading variant is already the dominant strain in the U.K., according to estimates derived from British health data, and is within days of becoming so in Denmark. Omicron has been detected in 89 countries, and Covid-19 cases of the variant are doubling every 1.5 to three days in places with community transmission, the World Health Organization said Saturday.
Iran's Top Diplomat in Yemen Leaves the Country
Iran's top diplomat in Yemen flew out of the country on Saturday in an agreement between Houthi militants controlling the capital and Saudi Arabia, according to regional officials.
(MORE TO FOLLOW) Dow Jones Newswires
12-20-21 0034ET
