MARKET WRAPS

Watch For:

U.S. Leading Indicators for November; Nike Inc. 2Q Results.

Opening Call:

Stock futures, oil prices and bond yields fell as investors worried that a rise in Omicron Covid-19 cases would stall economic growth and add pressure to inflation.

Stock futures pared some losses after Moderna said a third dose of its Covid-19 vaccine increased immune responses against Omicron compared with two doses in lab tests, signaling the shot could still offer protection. Moderna shares jumped more than 5% premarket.

Some countries are imposing restrictions to stem the spread of the Omicron variant as the holiday season starts. The Netherlands on Sunday reimposed a lockdown, with all nonessential shops, bars and restaurants closed until mid-January. Irish Prime Minister Micheál Martin also announced new restrictions. President Biden plans to deliver an update Tuesday on the fight against Covid-19 in the U.S., where cases are rising.

The rise in infections has prompted concerns that a new wave is likely to prolong supply-chain disruptions that have elevated inflation.

"We're really seeing Omicron spread like wildfire, and it's weighing on sentiment," said Esty Dwek, chief investment officer at FlowBank. "You're seeing lockdowns instigated in Europe. You're seeing more and more restrictions and the number of cases is going up so much that even if it's less severe it could lead to more hospitalizations," which are likely to cause new restrictions that will weigh on growth, she added.

In premarket trading, shares of cruise companies sank, with Norwegian Cruise Line and Carnival down more than 3% each. Shares of energy companies slipped alongside oil prices. Occidental Petroleum shares fell almost 4% and Marathon Oil declined more than 5%.

Portfolio managers whose performance is assessed on a year-over-year basis are also likely closing out their positions and locking in gains after a strong year in markets. Despite recent market volatility, the S&P 500 is up more than 20% this year.

Also weighing on sentiment, 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 Mr. Biden's economic agenda as currently written.

Forex:

The Federal Reserve's focus on starting to raise interest rates next year, with asset purchases due to end by the end of 1Q, will continue to shift the market's attention toward the dollar, boosting the currency, Danske Bank said.

Monetary divergence between the U.S. and the eurozone should push EUR/USD down toward 1.10 in 12 months, Danske forecasts.

"Market themes are increasingly pro dollar," it said. "The manufacturing cycle is clearly slowing but central banks need to tighten to catch-up with inflation pressures and this is quite negative for EUR/USD." Danske forecasts EUR/USD at 1.12 in three months and 1.11 in six months.

Bitcoin and other cryptocurrency prices fell as fears over restrictions to halt the spread of the Omicron coronavirus variant weigh on risk appetite.

"Cryptocurrencies are trading in parallel to the risk appetite right now, and in the absence of breaking news or impactful tweets, we could expect the negative pressure to continue," Swissquote Bank analyst Ipek Ozkardeskaya said.

"The next important technical level to watch in Bitcoin is $45,000, a touch below this level, there is another major Fibonacci support on July-November rally, which could further call the death of the latest rebound."

Bitcoin, the leading cryptocurrency, drops 2.4% to $45,986, according to CoinDesk

The Japanese yen rose versus the dollar as U.S. Treasury yields fall on increased demand for safe havens, reflecting worries over the Omicron coronavirus variant and the prospect of tighter U.S. fiscal policy. "USD/JPY continues to be the most tightly correlated G10 FX pair to U.S. yields, and has come under downward pressure alongside U.S. yields," MUFG currency analyst Lee Hardman said.

Investor sentiment is undermined by further evidence of the disruptive impact of Omicron and by Democratic Senator Joe Manchin's assertion that he won't back President Joe Biden's $2 trillion spending bill, he said.

The Turkish lira fell to new record lows and the selloff is likely to persist as Turkey's central bank looks poised to cut interest rates further in 2022, Unicredit said. The bank last Thursday signalled it could keep its rates unchanged in the 2022 first quarter but additional rate cuts next year remain likely due to pressure from President Recep Tayyip Erdogan, Unicredit economist Gokce Celik said.

"Inflation will likely rise sharply in the coming months and depreciation pressure on the TRY could continue while other central banks are tightening."

Meanwhile, the "inadequacy" of Turkey's foreign exchange reserves means currency interventions are unlikely be sizeable enough to stabilize the lira, Celik said.

Bonds:

In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 1.382% Monday from 1.401% Friday

Indosuez Wealth Management expects inflation to remain high in 1H 2022, near the current level in the U.S., but it will monitor any de-anchoring of inflation expectations, chief investment officer Vincent Manuel and investment strategy analyst Adrien Roure said.

That could fuel more sustainable wage inflation, although this isn't Indosuez WM's current core scenario. In Europe, the inflation trend will be driven primarily by the resolution to the energy shock, they said.

Indosuez WM expects short-term volatility, but with the ebbing of supply-chain tensions, inflation should come back down after spring and gradually move closer to the central banks' targets in 2023. It is forecast at 4.5%-5% in the U.S. and 2.5%-3% in Europe in the coming months.

Commodities:

Oil prices fell amid concerns that the spread of the Omicron variant could hurt global economic growth and crimp oil demand.

After getting hammered when the pandemic began, global oil demand has recovered this year. Still, it remains about two million barrels a day short of its pre-pandemic level of almost 101 million barrels a day, according to the International Energy Agency.

The agency has said it expects the surge in Covid-19 cases to slow the revival in demand by reducing air travel and hitting consumption of jet fuel. Adding to the pressure on prices, production is on the rise, particularly in the U.S., where drilling activity has picked up.

Meanwhile, European gas prices are up 3.3% after Russian gas flow to Germany via Poland almost dropped to zero over the weekend.

London gold prices were down, although they have crept up so far in December, thanks to safe-haven appetite for the yellow metal, Swissquote's Ipek Ozkardeskaya said.

While Ozkardeskaya doesn't expect any further rallies from gold, she said that may change "if there is a significant erosion in the risk sentiment and a further selloff across the risk assets."

Ultimately, signals of tightening monetary policy out of the Fed makes the dollar a safer haven than gold at the moment, she added.

LME three-month copper futures are down 1%, with equities and oil markets dropping and the dollar having risen in recent weeks, making dollar-denominated commodities more expensive for other currency holders.

TODAY'S TOP HEADLINES

Moderna Says Covid-19 Booster Dose Works Against Omicron Variant in Lab Tests

Moderna Inc. said a third dose of its Covid-19 vaccine increased immune responses against the Omicron coronavirus variant compared with two doses in lab tests, signaling the shot could still offer protection despite the variant's mutations.

The findings, reported by Moderna on Monday, were the latest positive-though preliminary-results from lab tests suggesting boosters can protect against the worrisome new strain.

BNP Paribas to Sell Bank of the West to Bank of Montreal for $16.3 Bln

BNP Paribas SA said Monday that it has agreed to sell Bank of the West to Bank of Montreal's BMO Financial Group for a total consideration of $16.3 billion in cash.

The sale represents all of BNP Paribas's retail and commercial-banking activities in the U.S. Some 70% of Bank of the West's deposits are in California.

Exxon's New CFO Takes On Debt Reduction, Spending Plans

Exxon Mobil Corp. is looking to further reduce its debt, evaluating sustainability-linked financing instruments and preparing for potential new climate-related disclosure requirements, finance chief Kathryn Mikells said.

"We're very focused on paying down debt further, [and] we'll walk it down a bit more as we enter 2022," Ms. Mikells said in her first interview since she joined the Irving, Texas-based oil-and-gas giant in August.

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.

Chinese Developer Kaisa Follows Evergrande Into Restructuring Talks

Kaisa Group Holdings Ltd., which in 2015 became one of the first Chinese developers to default abroad, said it had failed to make several payments on dollar bonds as planned, and is talking to creditors about a wide-ranging restructuring plan.

(MORE TO FOLLOW) Dow Jones Newswires

12-20-21 0615ET