Market movers today
- Today oil markets will look to OPEC+ for comforting signals after the plunge in prices since the news of the Omicron variant broke last week. OPEC+ needs to decide whether to go ahead with the planned 400kb/d output increase in January.
- In the US, it will be interesting to see what follows for initial jobless claims after last week’s decline below 200,000. We will likely see another strong print adding further pressure on Fed.
- We also have several Fed speakers on the wire. Here we will listen to their stance on tapering pace compared to Powell’s comments in recent days.
The 60 second overview
Oil: The rebound in oil prices yesterday again proved short-lived and Brent trades below USD70/bbl this morning. For the market, no news from OPEC+ so far is bad news amid an increasing spread of the Omicron variant and potential for more travel restrictions to come which should make it easy for OPEC+ to decide to hold back some or all of the planned 400kb/d output increase for January.
US: ISM manufacturing rose slightly in November to 61.1 – a still elevated level of manufacturing activity. The new orders index rose 61.5 which signals still strong activity to come and the prices paid index stayed at very high level of 82.4.
Fed: Cleveland Fed President Loretta Mester said yesterday she is open to tapering bond purchases at a faster pace, which would provide Fed with an option to hike rates. She added Fed should be able to hike rates a couple of times next year.
Equities: What looked like a rebound turned into risk-off in the US session as the first Omicron case had been detected in the country. Reopening plays were naturally among the worst performers in the US session and growth/momentum stocks trailed. Value and defensives generally held up better, although most sectors sold off. This brought S&P500 -1.1% lower, Nasdaq -1.8%, Dow -1.3% and Russell 2000 still underperforming – down -2.3%. What is more, VIX shot up further, ending north of 30. This is the highest implied volatility since January. Trading in Asia is more directionless this morning, and US futures have turned slightly positive.
FI: The belly of the EGB curve underperformed yesterday (5y Obl +3bp) as markets continue to digest the hawkish shift from Powell from Tuesday late in the afternoon and continued news that the Omicron variant may not be as severe as the previous. Markets recorded significant underperformance of the periphery, led by Italy by almost 4bp to reach new highs of 135bp in the BTPs-Bund spread, however with most drivers in the BTPs-Bund spread currently being external factors with resilient domestic policies, we expect a tightening bias going forward to approach the levels prevailing in September again (around 100-110bp). After the recent comments on accelerated Fed taper, markets will closely watch for Lagarde’s speech tomorrow (9:30 CET).
FX: The tone in FX continues to be largely set by moves in equities, rates and commodities.
Credit: Volatility remains high in credit though yesterday to the positive side. iTraxx Xover tightened 9bp and Main 1.6bp. HY bonds closed 8bp lower and IG 2bp lower.
