MARKET WRAPS
Watch For:
UK quarterly national accounts; UK Balance of Payments.
Opening Call:
European stocks could open higher, U.S. stock futures edge lower. Dollar is slightly higher in Asia, 10-year U.S. Treasury yield edges higher. Oil gains, gold steady.
Equities:
European stocks are set to extend gains and follow Wall Street higher Wednesday after President Joe Biden reassured investors by calling for vaccinations and testing but no travel curbs in response to the omicron coronavirus variant.
Biden announced the government will provide 500 million free rapid-test kits and increase vaccination efforts but gave no indication of plans for travel bans or other restrictions that might disrupt the economy. Other governments in Asia and Europe have tightened travel controls or pushed back plans to relax curbs already in place.
Biden "provided some much-needed reassurances for markets," Yeap Jun Rong of IG said in a report.
Stocks in Asia were cautiously higher and U.S. stock futures edged lower.
"With pre-holiday liquidity tumbling, and market direction entirely dominated by headline derived volatility, it is probably not wise to get too wedded to "the worst is over just yet. I'll say is again, volatility is the winner in December, not thematic direction," said Jeffrey Halley at OANDA.
Meanwhile, December's decline in consumer confidence adds to the list of deteriorating consumer indicators, Capital Economics's senior Europe economist Jack Allen-Reynolds said. The European Commission's measure of consumer confidence fell from minus 6.8 in November to minus 8.3 in December.
Apart from this weakening, other indicators such as mobility trackers also point to a recent drop in spending, Allen-Reynolds said.
The economist said the data is consistent with Capital Economics's view that GDP growth will slow sharply in the fourth quarter but avoid a contraction. Looking ahead, the pandemic situation presents a big downside risk to 1Q, with the economy set to start next year on the back foot.
The combination of a high speed of propagation of the Omicron coronavirus variant and a still significant number of people without any protection may mean that additional restrictions will be needed in the weeks ahead as a "circuit breaker" to preserve healthcare capacity, Gilles Moec, Group Chief Economist at AXA Investment Managers said.
This would dent global GDP growth this winter, even if it would likely be a mere pause in the recovery trajectory, he said. The emergence of the Omicron variant is a downside risk to AXA IM's forecasts for 2022, Moec said. However, "we aren't back to square one in the fight against the pandemic," he added.
Stocks to watch: Miner Rio Tinto's purchase of the Rincon lithium project in Argentina demonstrates its confidence in the battery material's outlook and reflects an earlier commitment to invest in commodities such as lithium needed for a low-carbon economy, said Macquarie.
Rincon has the potential to produce 50,000 tons a year of lithium carbonate for 40 years, lifting Rio's long-term lithium-carbonate production outlook to 108,000 tons a year, Macquarie said. Rio was down 1.6% in Sydney.
Forex:
The US dollar was slightly stronger in early Asia trading. "For the most part, the dollar has been king," this year, Scott Petruska, chief currency strategist at Silicon Valley Bank, told WSJ.
But over the past five weeks or so the rally has flagged due to a combination of factors including Treasurys stalling and big central banks becoming more hawkish.
"The dollar's safe-haven role is still front and center," Petruska said. The market is still very long the dollar, he said, and thinks the dollar index could still increase by one percent. Then in 2Q or 3Q, "hopefully we'll have a global recovery and then the dollar will turn lower."
Asian currencies consolidate against USD amid mixed developments. Overnight gains on Wall Street have boosted risk sentiment in Asia today; however, the relatively quiet economic calendar may put focus on the ongoing risks of the Covid-19 Omicron variant to the region's reopening plans, IG said.
Bonds:
The 10-year yield rose to 1.469% from Tuesday's 1.461%. Federal Reserve Bank of New York research said central-bank bond buying done in March 2020, at the start of the pandemic, did a good job of restoring market functioning in the face of heavy stress.
"While it is difficult to pin down the effects of the Fed's purchases amidst the pandemic and numerous policy actions, the evidence suggests they were effective," said the bank.
The paper did add that the purchases were not a panacea, and the fact that the Fed rode to the market's rescue may increase moral hazard risks and make market participants believe the central bank will bail them out next time there's trouble.
Energy:
Oil rose in the morning Asian session on hopes that holiday travel-related demand will be stable. There appears to be optimism that holiday travel will remain intact for most vaccinated individuals, Oanda said.
Both the U.S. and the U.K. don't appear to be heading for pandemic-related lockdowns, suggesting oil's short-term outlook may not be completely derailed by the Omicron variant, Oanda added.
Metals:
Gold was trading steadily in the morning Asian session, and could consolidate during the rest of the holiday-shortened week.
Gold prices are figuring out their year-end trading range somewhere around $1,800/oz and that should remain intact as trading volumes decrease, Oanda said. Major markets such as Wall Street and including those for precious metals, will be closed on Friday in observance of the Christmas holiday.
Copper shifted lower in early Asian trading, with traders taking more short positions amid a bearish macro outlook, brokerage Marex said.
The bearishness is "reflected in positioning where we see shorts across all three exchanges," it said, referring to the LME, Comex, Shanghai Futures Exchange.
However, logistics issues at Las Bambas copper mine, which produces 2% of the world's copper supply, could limit losses, Marex said. Protesters in Peru have been blocking a road used by the MMG-owned mine.
Lithium-rich spodumene is likely to remain in short supply, as increased production from mining operations is outpaced by demand from the electric-vehicle market, said Macquarie.
"Lithium production rates have increased over 2021, with solid increases from spodumene producers in Western Australia and rising production from South America" but "the increase has failed to suppress spot lithium prices," said Macquarie.
The bank--which raises its spodumene price forecasts, including for 2022 by 71%, to $2,363/ton--said the market has swung to a deficit in 2021 from a surplus last year, and that the shortfall should deepen over this decade.
TODAY'S TOP HEADLINES
Biden Administration to Combat Omicron by Distributing 500 Million At-Home Covid-19 Test Kits
WASHINGTON-The Biden administration is preparing to distribute 500 million free at-home Covid-19 testing kits to Americans and deploy military doctors and nurses to overburdened hospitals this winter, as the Omicron variant becomes the dominant form of the virus in the U.S.
"We have to do more. We have to do better-and we will," President Biden said at the White House on Tuesday during a speech outlining the new coronavirus-response measures.
Biden Is Considering Lifting Travel Ban on Southern African Countries
President Biden said he is considering lifting a travel ban he imposed last month on non-U. S. citizen travelers from South Africa and seven other southern African countries.
He told reporters at the White House on Tuesday that the Omicron variant's wide spread in the U.S. could prompt him to lift the restrictions. "Remember why I said we put the travel ban on. It was to see how much time we had before it hit here so we can begin to decide what we needed by looking up what was happening in other countries," he said. "But we're past that now."
Surging Inflation Has Workers Demanding Bigger Raises. Could It Lead to a Wage-Price Spiral?
The COLA is making a comeback.
Higher prices, a worker shortage and a revitalized labor movement are bringing about the return of pay increases tied to inflation, known as cost-of-living adjustments, or COLAs.
IRS Says Tax-Free Maltese Pensions Are Too Good to Be True
Officials of the U.S. and Malta have signed an agreement cracking down on Maltese pension maneuvers used by some wealthy Americans to avoid taxes, the Internal Revenue Service said Tuesday.
The IRS also said it was "actively examining" taxpayers who set up Maltese pensions.
U.S. current account deficit widens sharply in third quarter
The U.S. current account deficit widened 8.3% to $214.8 billion in the third quarter, the Commerce Department said Tuesday. It is the largest deficit since 2006. The trade gap has widened for seven straight quarters.
The widening of the deficit reflected a reduced surplus on services, which have been hit hard by the coronavirus. The goods deficit widened in the third quarter.
Maersk Nears Deal to Buy LF Logistics for About $3 Billion
A.P. Moller-Maersk A/S is in advanced talks to acquire LF Logistics for around $3 billion, according to people familiar with the matter, a move that would give the ocean shipping giant a network of warehouses.
An announcement could come as soon as Wednesday, assuming the talks don't break down, the people said.
U.S. Sees Russian Gas Pipeline as Leverage in Ukraine Crisis, but Needs German Help
WASHINGTON-A Russian pipeline carrying natural gas to Germany is emerging as a potential point of leverage for the U.S. to deter Russia from invading Ukraine. It is also a sore spot between Berlin and Washington.
(MORE TO FOLLOW) Dow Jones Newswires
12-22-21 0034ET
