MARKET WRAPS
Watch For:
Germany Retail Trade; U.K. Nationwide House Price Index; Eurozone Manufacturing PMI; OECD Economic Outlook; U.K. CIPS/Markit Manufacturing PMI; BOE's Bailey speaks.
Opening Call:
European equities could gain at the open, stocks in Asia are mostly trading higher, while U.S. stock futures are pointing to a higher open for the major indices. The U.S. dollar weakens slightly against the yen and euro. Oil prices and gold are both higher.
Equities:
European stocks are set to rise early Wednesday, but investors are likely to remain nervous due to worries over the newest coronavirus variant.
The detection of the omicron variant in Japan, as well as Brazil, announced Tuesday, has raised fears that further measures to contain infections would squelch tourism and other economic activity. Experts say it may take weeks before they know more details about whether the omicron variant causes serious illness.
Anderson Alves, a trader at ActivTrades, said Asian markets were nervous after an overnight slide on Wall Street and comments from Moderna's CEO that existing COVID-19 vaccines may be less effective with omicron than earlier variants.
"Traders will look for new insights regarding the new variant and its impact on the current vaccine framework," Alves said.
Wall Street's losses deepened after the head of the Federal Reserve said it will consider shutting off its support for financial markets sooner than expected.
The sell-off accelerated after Fed Chair Jerome Powell told Congress the central bank may halt the billions of dollars of bond purchases it's making every month "perhaps a few months sooner." It had been on pace to wrap up the purchases, meant to goose the economy by lowering rates for mortgages and other long-term loans, in June.
"There will be heightened volatility around any piece of information," said Kristina Hooper, chief global market strategist at Invesco. She said markets will likely remain cautious "before we know more."
Forex:
The USD/JPY rose on expectations the Fed may shift to tighten its policy sooner than previously thought, after the Fed's Powell said Tuesday the central bank was prepared to quicken the pullback of its easy-money policies.
As the Fed puts emphasis on price stability to ensure economic recovery, inflation and other economic data will be closely watched, including U.S. private-sector jobs and manufacturing activity data due later in the day.
The US dollar weakened against the yen and slightly against the euro, while the WSJ Dollar Index was flat. Headlines have been dominated by the omicron variant over last four or five days, Minh Trang at Silicon Valley Bank said.
"What's driving markets today are comments by Chairman Powell saying the new variant may be a headwind against growth in the US," and markets reacted quickly to that, the senior foreign exchange trader said Tuesday.
"The Fed may not be as hawkish as they thought a week ago." Generally, there's a flight to safety and investors are reassessing bets on rates in various countries. "Markets don't like uncertainty" and this new variant represents uncertainty, he added.
Bonds:
"In the US we've already seen wage growth, labor market conditions are tighter than the unemployment rate would suggest ... probably some of this is temporary, but the conditions have already triggered high wage demand," said Luigi Speranza, chief global economist with BNP Paribas.
He expects Europe to follow the same pattern, but with a lag, and notes inflation reaching record highs--with Germany logging 6%.
"The wage negotiation process is a bit staggered over time because it's more centralized in Europe, so it requires a bit more time to provide concrete evidence of these inflationary pressures building, but I think the direction is the same. With a lag, we expect Europe to follow, and with a lag, we expect the central bank in Europe, like the Fed, to respond to these inflationary pressures."
Energy:
Oil prices were higher in early Asian trade, reversing sharp declines in the previous session after the Fed's Powell said that the central bank could start to taper asset purchases sooner than expected.
Focus is likely to be on the OPEC+ meeting Thursday regarding any changes to its oil supply agreement, IG said. So far, Russia and Saudi Arabia have signaled that there is no need to adjust output as they remain unconcerned on the spread of the Omicron Covid-19 variant, it said.
Metals:
Gold was higher in early Asian trade, after a volatile session on Tuesday. Oanda expects price of the metal to remain volatile and stabilize once it gets through the tough period of a stimulus withdrawal.
Copper prices rose in early Asian trade, recovering slightly from Tuesday's losses amid macroeconomic concerns triggered by the new Covid-19 variant.
Huatai Futures advises investors to remain cautious in the near term, as many commodities fell sharply overnight due to rising concerns over the Omicron variant after drug makers warned of less vaccine efficacy. The brokerage expects market fears to persist and copper trading may suffer volatility ahead.
TODAY'S TOP HEADLINES
Powell Lays Groundwork for Faster End to Stimulus as Inflation Outlook Worsens
Federal Reserve Chairman Jerome Powell said the central bank was prepared to quicken the pullback of its easy-money policies, opening the door to raising interest rates in the first half of next year as it grapples with inflation and a potential new virus wave that could exacerbate supply-chain disruptions.
Mr. Powell during a Senate hearing on Tuesday said it would be appropriate for the Fed to consider accelerating the reduction of its asset-purchase stimulus program at its meeting on Dec. 14-15.
China's Caixin Manufacturing Gauge Slips in November on Weaker Demand
A private gauge measuring activity in China's manufacturing sector slipped in November and fell into contractionary territory, as both domestic and overseas demand waned.
The Caixin China purchasing managers index dropped to 49.9 from 50.6 in October, indicating that overall business conditions faced by Chinese manufacturers were broadly unchanged, according to data released Wednesday by Caixin Media Co. and researcher Markit. A reading below 50 indicates contraction of activity, while a result below 50 means an expansion.
Omicron Variant Adds Urgency to Covid-19 Vaccine Talks, WTO Chief Says
WASHINGTON-The new Omicron Covid-19 variant has added urgency for the World Trade Organization to act faster on vaccines, the group's leader said Tuesday, as the variant disrupted contentious negotiations aimed at boosting vaccine supplies to poorer countries around the world.
Omicron's emergence forced the WTO to postpone a key ministerial meeting scheduled to start Tuesday in Geneva, with the agenda including discussions over vaccinating billions of people in developing countries by suspending intellectual property rights for vaccines.
Australia Economy Shrinks in Third Quarter But Rebound Already Underway
SYDNEY-Australia's economy shrank in the July-September quarter as efforts to combat the Delta variant of the Covid-19 virus forced more than half the country into strict and lengthy lockdowns.
The economy contracted by 1.9% in the third quarter from the previous quarter and grew 3.9% over the year, the Australian Bureau of Statistics said Wednesday. Economists had expected a 2.5% contraction in the third quarter.
BOJ Policy Board Member Sees Path Toward Higher Prices in Japan
Bank of Japan policy board member Seiji Adachi said Wednesday that he sees a greater chance that the nation's inflation rate will increase after years of flat prices.
Mr. Adachi pointed out changes in Japanese companies' price-setting behavior and improvements in their growth expectations.
Fewer People Shopped Over Thanksgiving Weekend Than Last Year
Fewer U.S. consumers made purchases during the Thanksgiving weekend for the second straight year, as more shoppers began their holiday shopping early and smaller discounts gave them less incentive to spend.
Roughly 180 million Americans went shopping in stores or online between Thursday and Monday, the National Retail Federation reported, compared with 186.4 million in 2020 and 189.6 million in 2019. The NRF, a retail trade group, based its estimates on a consumer survey done in partnership with Prosper Insights & Analytics.
Iran's Nuclear Enrichment Could Imperil Talks, Diplomats Say
VIENNA-Senior European diplomats warned on Tuesday that negotiations to revive nuclear talks could be terminated if Iran moved to produce weapons-grade nuclear fuel.
"It would seriously imperil the process" if Iran did something "as provocative as going to 90% enrichment," said a senior diplomat from the three Western European nations that are participating in the talks-Britain, France and Germany.
Omicron Variant Adds Urgency to Covid-19 Vaccine Talks, WTO Chief Says
WASHINGTON-The new Omicron Covid-19 variant has added urgency for the World Trade Organization to act faster on vaccines, the group's leader said Tuesday, as the variant disrupted contentious negotiations aimed at boosting vaccine supplies to poorer countries around the world.
Omicron's emergence forced the WTO to postpone a key ministerial meeting scheduled to start Tuesday in Geneva, with the agenda including discussions over vaccinating billions of people in developing countries by suspending intellectual property rights for vaccines.
As Omicron, Supply-Chain Problems Loom, Eurozone Inflation Hits Record
The eurozone's annual rate of consumer-price inflation jumped to a record in November, adding to the challenges facing the European Central Bank as the new coronavirus variant, supply-chain disruptions and soaring energy prices complicate its policy decisions for the coming year.
(MORE TO FOLLOW) Dow Jones Newswires
12-01-21 0023ET
