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Futures Flat Ahead Of Taper Accelerating Payrolls

Courtesy of ZeroHedge View original post here.

U.S. equity futures were flat, rebounding from an overnight slide following news that 5 "mild" Omicron cases were found in New York, and European stocks wavered at the end of a volatile week as traders waited for the latest jobs data to assess the likely pace of Federal Reserve tightening and accelerated tapering. Emini S&P futures traded in a narrow range, and were up 2 points or 0.04%, Nasdaq futures were flat,while Dow Jones futures were up 8 points. The dollar edged higher, along with the euro after ECB President Christine Lagarde said inflation will decline in 2022. Crude advanced after OPEC+ left the door open to changing the plan to raise output at short notice.

S&P 500 and Nasdaq 100 contracts fluctuated after dip-buyers Thursday fueled the S&P 500’s best climb since mid-October, a sign that some of the worst fears about the omicron virus strain are dissipating. That said, concerns about omicron are overshadowing economic news for now with “a lot of noise and very little meaningful information,” said Geir Lode, head of global equities at Federated Hermes in London. “The prospect of a faster monetary policy tightening could — and should probably — lead to a clear market reaction,” he said. “It is also another argument for why we assume value stocks outperform growth stocks. At the moment, however, investors’ attention is elsewhere.”

In the latest U.S. data, jobless claims remained low, suggesting additional progress in the labor market. Traders are awaiting today's big event – the November payrolls numbers, which could shape expectations for the pace of Fed policy tightening (full preview here). Bloomberg Economics expects a strong report, while the median estimate in a Bloomberg survey of economists predicts an increase of 550,000.

“Assuming the omicron news remains less end-of-the-world, a print above 550,000 jobs should see the faster Fed-taper trade reassert itself,” Jeffrey Halley, a senior market analyst at Oanda, wrote in a note. “That may nip the equity rally in the bud, while the dollar and U.S. yields could resume rising.”

In premarket trading, Didi Global Inc. jumped more than 14% in U.S. premarket trading before reversing all gains, after the Chinese ride-hailing giant said it began preparations to withdraw from U.S. stock exchanges. U.S. antitrust officials sued to block chipmaker Nvidia’s proposed $40 billion takeover of Arm, saying the deal would hobble innovation and competition. Elon Musk’s offloading of Tesla Inc. shares surpassed the $10 billion mark as he sold stock in the electric-car maker for the fourth consecutive week. Here are some of the other biggest U.S. movers today:

  • DocuSign (DOCU US) plunges 32% in premarket trading as the e-signature company’s quarterly revenue forecast missed analysts’ estimates. JPMorgan and Piper Sandler cut ratings.
  • Marvell Technology (MRVL US) shares rise 18% in premarket after the semiconductor company’s fourth-quarter forecast beat analyst estimates; Morgan Stanley notes “an exceptional quarter” with surprising outperformance from enterprise networking, strength in 5G and in cloud.
  • Asana (ASAN US) shares slump 14% in premarket trading after results, with KeyBanc cutting the software firm’s price target on a reset in the stock’s valuation. Piper Sandler said that slight deceleration in revenue and billings growth could disappoint some investors.
  • Zillow Group (ZG US) shares rise 8.8% in premarket after the online real-estate company announced a $750 million share repurchase program and said it has made “significant progress” on Zillow Offers inventory wind- down.
  • Stitch Fix (SFIX US) jumped in premarket after Morgan Stanley raised its rating to equal-weight from underweight.
  • Smartsheet (SMAR US) rose in postmarket trading after the software company boosted its revenue forecast for the full year; the guidance beat the average analyst estimate.
  • National Beverage Corp. (FIZZ US) gained in postmarket trading after the drinks company announced a special dividend of $3 a share.
  • Ollie’s Bargain (OLLI US) plunged 21% in U.S. premarket trading on Friday, after the company’s quarterly results and forecast disappointed, hurt by supply-chain troubles.
  • Smith & Wesson Brands (SWBI US) stock fell 15% in postmarket trading after adjusted earnings per share for the second quarter missed the average analyst estimate.

In Europe, the Stoxx Europe 600 Index slipped as much as 0.2% before turning green with mining companies and carmakers underperforming and energy and utility stocks rising. Swedish Orphan Biovitrum AB fell as much as 26% after private-equity firm Advent International and Singapore wealth fund GIC abandoned their $7.6 billion bid to buy the drugmaker.

Volatility across assets remains elevated, reflecting the Fed’s shift toward tighter monetary settings and uncertainty about how the omicron outbreak will affect global reopening. The hope is that vaccines will remain effective or can be adjusted to cope. New York state identified at least five cases of omicron, which is continuing its worldwide spread, while the latest research shows the risk of reinfection with the new variant is three times higher than for others.

“The environment in markets is changing,” Steven Wieting, chief investment strategist at Citigroup Private Bank, said on Bloomberg Television. “Monetary policy, fiscal policy are all losing steam. It doesn’t mean a down market. But it’s not going to be like the rebound, the sharp recovery that we had for almost every asset in the past year.”

Earlier in the session, Asian stocks held gains from the past two days as travel and consumer shares rallied after their U.S. peers rebounded and a report said Merck & Co. is seeking to obtain approval of its Covid-19 pill in Japan. The MSCI Asia Pacific Index was little changed after climbing as much as 0.3%, with Japan among the region’s best performers. South Korea’s benchmark had its biggest three-day advance since February, boosted by financial shares. Still, Asian stocks headed for a weekly loss as U.S. regulators moved a step closer to boot Chinese firms off American stock exchanges. The Hang Seng Tech Index slid as much as 2.7% to a new all time low, as Tencent Holdings and Alibaba Group Holding fell after Didi Global Inc. began preparations to withdraw its U.S. listing. 

“While the risks of delisting have already been brought up previously, a step closer towards a final mandate seems to serve as a reminder for the regulatory risks in Chinese stocks,” said Jun Rong Yeap, a market strategist at IG Asia Pte. Asian stocks remain stuck near a one-year low, as the delisting issue damped sentiment already hurt by omicron and the Fed’s hawkish pivot. A U.S. payrolls report later today could give further clues on the pace of tightening

Japanese equities rose, paring their weekly loss, helped by gains in economically sensitive names. Electronics makers reversed an early loss to become the biggest boost to the Topix, which gained 1.6%. Automakers and banks also gained, while reopening plays tracked a rebound in U.S. peers. Daikin and Recruit were the largest contributors to a 1% gain in the Nikkei 225, which erased a morning decline of as much as 0.6%. The Topix still dropped 1.4% on the week, extending the previous week’s 2.9% slide, amid concerns over the omicron coronavirus variant. Despite some profit-taking in tech stocks in the morning session, “the medium and long-term outlooks for these names continue to be really good,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “The spread of the omicron variant doesn’t mean an across-the-board selloff for Japanese stocks.”

India’s benchmark equity index recorded a weekly advance, partly recovering from a sharp sell-off triggered by uncertainty around the new Covid variant, with investors focusing on the central bank’s monetary policy meeting from Monday.  The S&P BSE Sensex fell 1.3% to 57,696.46, but gained 1% for the week after declining for two weeks. The NSE Nifty 50 Index dropped 1.2%, the biggest one-day decline since Nov. 26. All but three of the 19 sector sub-indexes compiled by BSE Ltd. fell, led by a gauge of energy companies.

“The focus seems to be shifting from premium Indian equities to relatively cheaper markets,” Shrikant Chouhan, head of retail equity search at Kotak Securities said in a note. The cautious mood in India was heightened by the “unenthusiastic” response to the IPO of Paytm, which was also the biggest public share sale in the country, and a resurgence of Covid concerns across Europe, he added.  Investors also focused on the country’s economic outlook, which is showing signs of improvement. Major data releases this week — from economic expansion to tax collection — showed robust growth.

“Strong domestic indicators are playing a key role in driving the market amid negative global cues,” said Mohit Nigam, a fund manager with Hem Securities. But any further spread of the omicron strain in India may cap local equity gains, he said. Two cases of the new variant have been detected so far in the country. The market’s attention will shift to the Reserve Bank of India’s policy announcement on Dec. 8, after a three-day meeting from Monday. The panel is expected to leave record low interest rates unchanged as inflation remains within its target range. The economy faces new risks from the omicron variant after expanding 8.4% in the three months through September. Reliance Industries contributed the most to the Sensex’s decline, falling 3%. Out of 30 shares in the index, 26 fell and 4 gained.

The Bloomberg Dollar Spot Index advanced and the greenback was higher against all of its Group-of-10 peers, with risk-sensitive Scandinavian and Antipodean currencies the worst performers. Turkish lira swings back to gain against the USD after central bank intervention for the 2nd time in 3 days. The pound weakened and gilt yields fell after Bank of England policy maker Michael Saunders urged caution on monetary tightening due to the potential effects of the omicron variant on the economy.

The euro fell below $1.13 and some traders are starting to use option plays to express the view that the currency may extend its drop in coming month, yet recover in the latter part of 2022. The Aussie dropped for a fourth day amid concern U.S. payroll data due Friday may add to divergence between RBA and Fed monetary policy. Australia’s sale of 2024 bonds saw yields drop below those in the secondary market by the most on record. The yen weakened for a second day as the prospects for a faster pace of Fed tapering fans speculation of portfolio outflows from Japan.

In rates, Treasury yields ticked lower, erasing some of Tuesday jump after Fed officials laid out the case for a faster removal of policy support amid high inflation.  Treasurys followed gilts during European morning, when Bank of England’s Saunders said the omicron variant is a key consideration for the December MPC decision which in turn lowered odds of a December BOE rate hike. Treasury yields are richer by up to 1.5bp across 10-year sector which trades around 1.43%; gilts outperform by ~1bp as BOE rate- hike premium for the December meeting was pared following Saunders comments. Shorter-term Treasury yields inched up, and the 2-year yield touched the highest in a week Friday’s U.S. session features a raft of data headed by the November jobs report due 8:30am ET where the median estimate is 550k while Bloomberg whisper number is 564k; October NFP change was 531k

Crude futures extend Asia’s modest gains advanced after OPEC+ proceeded with an output hike but left room for quick adjustments due to a cloudy outlook, making shorting difficult. WTI added on ~2.5% to trade near $68.20, roughly near the middle of the week’s range. Brent recovers near $71.50. Spot gold fades a small push higher to trade near $1,770/oz. Most base metals are well supported with LME aluminum and zinc outperforming. 

Looking at the day ahead, and the aforementioned US jobs report for November will be the highlight. Other data releases include the services and composite PMIs for November from around the world, Euro Area retail sales for October, and in addition from the US, there’s October’s factory orders and the November ISM services index. From central banks, we’ll hear from ECB President Lagarde and chief economist Lane, the Fed’s Bullard and the BoE’s Saunders.

Market Snapshot

  • S&P 500 futures little changed at 4,574.25
  • STOXX Europe 600 up 0.2% to 466.43
  • MXAP little changed at 192.06
  • MXAPJ down 0.5% to 625.64
  • Nikkei up 1.0% to 28,029.57
  • Topix up 1.6% to 1,957.86
  • Hang Seng Index little changed at 23,766.69
  • Shanghai Composite up 0.9% to 3,607.43
  • Sensex down 1.3% to 57,692.90
  • Australia S&P/ASX 200 up 0.2% to 7,241.17
  • Kospi up 0.8% to 2,968.33
  • Brent Futures up 3.3% to $71.97/bbl
  • Gold spot down 0.1% to $1,767.28
  • U.S. Dollar Index up 0.14% to 96.29
  • German 10Y yield little changed at -0.37%
  • Euro down 0.1% to $1.1286

Top Overnight News from Bloomberg

  • “I see an inflation profile which looks like a hump” and “we know how painful it is,” ECB President Christine Lagarde says at event Friday. She also said that “when the conditions of our forward guidance are satisfied, we won’t be hesitant to act” and that an interest rate increase in 2022 is very unlikely
  • The betting window is open in the fixed-income market as hedge funds and other traders hunt for mispriced risk heading into 2022 — whether it’s predictions for accelerating inflation or rising interest rates
  • The U.K. Municipal Bonds Agency aims to sell the first ethical bonds on behalf of local governments early next year. The body, set up to help U.K. councils access capital markets, is looking to issue a couple of sustainable bonds in the first quarter of 2022, according to officials advising on the sales. It expects to follow that with a pooled ethical bond to raise money for a group of different local authorities
  • Low- income countries indebted to Chinese commercial and policy banks could buy specially-created Chinese government bonds and then use these as collateral to support the sale of new yuan debt, Zhou Chengjun, head of the People’s Bank of China’s finance research institute, wrote in an article published in the ChinaBond Magazine
  • Chinese tech shares briefly touched their record lows in Hong Kong, as Didi Global Inc.’s announcement to start U.S. delisting and rising scrutiny on mainland firms traded there dealt a further blow to already soured sentiment
  • The yuan is set to weaken for the first time in three years in 2022, as capital inflows are expected to slow amid a shrinking yield gap between China and the U.S., a Bloomberg survey shows
  • Turkish inflation accelerated for a sixth month in November to the highest level in three years, driven by a slump in the lira that continues to cloud consumer price outlook

A more detailed look at global markets courtesy of Newsquawk

Asian equities eventually traded mostly higher following the cyclical-led rebound in the US, but with the mood in the region tentative as Omicron uncertainty lingered after further cases of the new variant were reported stateside and with the latest NFP data drawing near. ASX 200 (+0.2%) lacked direction as resilience in cyclicals was offset by underperformance in defensives and amid ongoing COVID-19 concerns which prompted the Western Australian government to widen its state border closure to include South Australia. Nikkei 225 (+1.0%) was initially subdued amid recent currency inflows and with SoftBank among the worst performers amid several negative headlines including the FTC suing to block the Nvidia acquisition of Arm from SoftBank, while the Japanese conglomerate also suffered from its exposure in “super app” Grab which tumbled 20% in its New York debut and with Didi to start delisting from the NYSE in favour of a Hong Kong listing, although the index eventually recovered losses in latter half of trade. Hang Seng (-0.1%) and Shanghai Comp. (+0.9%) were varied with US-listed Chinese companies pressured as the US SEC moved closer to delisting Chinese ADRs for failing to comply with disclosure requirements, while the mood across developers was also glum with Kaisa shares at a record low after its bond exchange offer to avert a default was rejected by bondholders and China Aoyuan Property Group slumped by double-digit percentages following its warning of an inability to repay USD 651.2mln of debt due to a liquidity crunch. Furthermore, participants digested the latest Caixin Services and Composite PMI data which slowed from the prior month, but both remained in expansion territory and with reports that advisors are to recommend lowering China’s economic growth target to 5.0%-5.5% or above 5%, fanning hopes for looser policy. Finally, 10yr JGBs gained and made another incursion above 152.00 with prices supported amid the cautious mood in Japan and with the BoJ also present in the market today for a total of JPY 1.05tln of JGBs heavily concentrated in 1yr-5yr maturities.

Top Asian News

  • Astra Said to Sink Advent’s $7.6 Billion Buyout of Biotech Sobi
  • BOJ Is Said to See Omicron as Potential Reason to Keep Covid Aid
  • Kaisa Swap Rejected, Developer Bonds Slide: Evergrande Update
  • Permira Is Said to Near Deal for U.K. Blood Plasma Lab BPL

The positivity seen heading into the European open dissipated as the session went underway, with the region seeing more of a mixed configuration in cash markets (Euro Stoxx 50 -0.1%; Stoxx 600 Unch) – with no clear drivers in the run-up to the US jobs report. The release will be carefully watching measures of labour market slack to gauge the progress towards the Fed's 'three tests' for rate hikes, whilst the Fed appears almost certain to announce a quickening in the pace of asset purchase tapering at its December meeting (Full NFP preview available in the Newsquawk Research Suite). The recent downside in Europe also seeps into the US futures, with the RTY (-0.2%), NQ (-0.2%) and ES (-0.3%) posting broad-based losses as things stand. Sectors have shifted from the earlier firm cyclical layout to one of a more defensive nature, with Healthcare, Food & Beverages, and Personal & Household Goods making their way up the ranks. Travel & Leisure still sits in the green but largely owed to sector heavyweight Evolution (+6.3%) as the group is to acquire its own shares in Nasdaq Stockholm. Oil & Gas sits as the current winner as crude markets claw back a bulk of this week's losses. On the flip side, Basic Resources are hit as iron ore tumbled overnight. In terms of individual movers, Dassault Aviation (+8.0%) shares soared after France signed a deal with the UAE worth some EUR 17bln. Allianz (+1.0%) stays in the green after entering a reinsurance agreement with Resolution Life and affiliates of Sixth Street for its US fixed index annuity portfolio, with the transaction to unlock USD 4.1bln in value.

Top European News

  • U.K. Nov. Composite PMI 57.6 vs Flash Reading 57.7
  • The Chance of a BOE Rate Hike This Month Has Fallen: BofA’s Wood
  • AP Moller Holding Agrees to Buy Diagnostics Company Unilabs
  • Permira Is Said to Near Deal for U.K. Blood Plasma Lab BPL

In FX, it’s debatable whether this month’s US jobs data will carry as much weight as normal given that Fed rhetoric in the run up to the pre-FOMC blackout period has effectively signalled a faster pace of tapering and the likelihood of more hawkishly aligned dot plots. However, the latest BLS report could be influential in terms of shaping the tightening path once QE has been withdrawn, as markets continue to monitor unfolding COVID-19 developments with the main focus on vaccine efficacy against the new Omicron variant. In the meantime, Buck bulls have resurfaced to lift the index more firmly back above 96.000 and towards loftier levels seen earlier this week within a 96.075-324 range, eyeing Monday’s 96.448 peak ahead of the semi-psychological 96.500 mark and then the w-t-d best at 96.647 set the day after. Back to Friday’s agenda, Fed’s Bullard is due to speak and the services ISM rounds off the week.

  • AUD/NZD – The high betas are bearing the brunt of Greenback gains, but also bearish technical forces as the Aussie and Kiwi both lose sight of key chart and simple round number levels that were keeping them afloat or declines relatively contained at least. Aud/Usd is now probing 0.7050 and a Fib retracement just above, while Nzd/Usd is hovering around 0.6775 as the Aud/Nzd cross holds in the low 1.0400 zone.
  • JPY/CAD/CHF/GBP/EUR – All softer vs their US counterpart, with the Yen looking towards 113.50 for support with added protection from option expiry interest up to 113.60 in 1.1 bn, while the Loonie is relying on WTI to maintain recovery momentum before Canada and the US go head-to-head in the employment stakes. Usd/Cad is meandering in the low 1.2800 area as the crude benchmark regains Usd 68+/brl status from a sub-Usd 66.50 base and even deeper trough below Usd 62.50 in knee-jerk response to OPEC+ sticking to its output plan yesterday. Elsewhere, the Franc continues to straddle 0.9200, Sterling has retreated from 1.3300+ terrain again post-fractionally softer than forecast final UK services and composite PMIs, whilst a less hawkish speech from BoE hawk Saunders took Cable to a session low of 1.3255 and a 15bps Dec hike pricing fell from 51% to 26%. The Euro has also reversed from recent highs beyond 1.1300 amidst rather mixed Eurozone readings and pretty routine ECB rhetoric from President Lagarde plus GC members Knot, de Cos and de Guindos.

In commodities, WTI and Brent front month futures continue to nurse losses seen earlier this week, with the post-OPEC downside completely erased alongside some more. To recap, oil contracts were under pressure from compounding COVID headlines at the start of the week and in the run-up to OPEC+ whereby ministers opted to keep production plans despite the Omicron variant and the recent SPR releases. Delving deeper into these themes, desks suggest that a dominant Omicron variant could actually be positive if the strain turns out to be milder than some of its predecessors – with the jury still out but initial reports from India and South Africa suggesting so. Regarding OPEC+, some oil traders suggest the move to maintain plans was more of a political strategy as opposed to an attempt to balance markets, with journalists also suggesting that tensions with the US have simmered down and the prospect of further SPR releases have significantly declined. Further, it's also worth bearing in mind that due to maintenance and underinvestment, the real output hike from OPEC+ producers will likely be under the 400k BPD. In terms of Iranian developments, updates have been less constructive, with sources suggesting that Iran is holding a tougher stance than during the June talks. Negotiations will break today and resume next week. Crude contracts are modestly lower on the week and well-off worst levels, with Brent Feb now back around USD 71.50/bbl (65.72-77.02 weekly range), while WTI Jan resides around USD north of USD 68/bbl (62.43-72.93/bbl). Elsewhere, spot gold and silver vary, with the former finding some overnight support around USD 1,766/oz as risk sentiment erred lower, whilst the cluster of DMAs remain around the USD 1,790-91/oz region. In terms of base metals, LME copper is flat on either side of USD 9,500/t. Overnight, Dalian iron ore futures fell amid a decline in mill demand, whilst China's steel hub Tangshan city is to launch a second-level pollution alert from December 3-10th, the local government said – providing further headwinds for iron demand.

US Event Calendar

  • 8:30am: Nov. Change in Nonfarm Payrolls, est. 550,000, prior 531,000

     

    • Nov. Change in Private Payrolls, est. 525,000, prior 604,000
    • Nov. Change in Manufact. Payrolls, est. 45,000, prior 60,000
  • 8:30am: Nov. Unemployment Rate, est. 4.5%, prior 4.6%

    • Nov. Underemployment Rate, prior 8.3%
    • Nov. Labor Force Participation Rate, est. 61.7%, prior 61.6%
  • 8:30am: Nov. Average Hourly Earnings YoY, est. 5.0%, prior 4.9%

    • Nov. Average Hourly Earnings MoM, est. 0.4%, prior 0.4%
    • Nov. Average Weekly Hours All Emplo, est. 34.7, prior 34.7
  • 9:45am: Nov. Markit US Composite PMI, prior 56.5

    • Nov. Markit US Services PMI, est. 57.0, prior 57.0
  • 10am: Oct. Factory Orders, est. 0.5%, prior 0.2%

    • Oct. Factory Orders Ex Trans, est. 0.6%, prior 0.7%
    • Oct. Durable Goods Orders, est. -0.5%, prior -0.5%
    • Oct. Cap Goods Ship Nondef Ex Air, prior 0.3%
    • Oct. Cap Goods Orders Nondef Ex Air, prior 0.6%
  • 10am: Nov. ISM Services Index, est. 65.0, prior 66.7

DB's Jim Reid concludes the overnight wrap

I got great news yesterday. It was the school Xmas Fayre last weekend and at one stall we had to guess the weight of the school duck that lives in their pond. I spent a long time analysing it outside and was trying to mentally compare it to the weights of my various dumbbells at home. I learnt yesterday that I’d won. My prize? A rubber duck for the bath. In more trivial news I also learnt I was voted no.1 analyst in four categories of the Global Institutional Investor Fixed Income Analyst awards for 2021. So many thanks for all who voted. It is very much appreciated. However in terms of physical mementoes of my achievements yesterday, all I actually have to show for it is a brown rubber duck.

Guessing the weight of a duck is a walk in the park at the moment compared to predicting markets. Indeed it’s been a wild week. If you’ve managed to time all the various swings you can surely only have done it via a time machine. If you have done so without one though I will happily hand over my prized rubber duck. By the close of trade, the S&P 500 (+1.42%) had begun to recover following its worst 2-day performance in over a year. The VIX index of volatility ticked back down beneath the 30 mark again, but finished above 25 for the fourth day in five for the first time since December of last year. Meanwhile Oil plunged and then soared on OPEC+ news and curves continued to flatten as 2yr yields got back close to their pre-Omicron levels after a near 20bps round journey over the last week. I’m glad I’m a research analyst not a day trader, and that’s before we get to today’s payrolls print.

We’ll start with Omicron, where yesterday predictably saw a number of new countries report confirmed cases for the first time, as well as a second case in the United States during market hours, this one with roots in New York City, which reported more than 11,300 new cases yesterday, the highest daily count since January. After the market closed, an additional five cases were identified in New York, which sent futures over -0.5% lower at the time. They are back to flat as we type possibly helped by a late deal and vote in Congress to fund the US government through to February 18th and avert a shutdown at midnight tonight.

Back to the virus and governments continued to ramp up their defence measures, with Germany yesterday announcing a range of fresh restrictions as they grapple with the latest wave, including a requirement that you must either be vaccinated or have recovered from Covid in order to get into restaurants or non-essential stores. There’s also set to be a parliamentary vote on mandatory vaccinations, and incoming Chancellor Scholz said that he expected it to pass. In the US, President Biden announced new measures to fight the impending winter wave and spreading Omicron variant, including tighter testing guidelines for international visitors, wider availability of at home tests, whilst accelerating efforts to get the rest of the world vaccinated. Over in South Africa, the daily case count rose further yesterday, with 11,535 reported, up from 8,561 the previous day and 4,373 the day before that. So definitely one to keep an eye on as we look for clues about what this could mean for the world more broadly. That said, we’re still yet to get the all-important information on how much less or more deadly this might be, as well as how effective vaccines still are and the extent to which it is more transmissible relative to other variants.

Back to markets, and the revival in risk appetite led to a fresh selloff in US Treasuries, with the 2yr yield up +6.7bps, and the 10yr yield up +3.7bps. Nevertheless, as mentioned at the top, the latest round of curve flattening has sent the 2s10s slope to its flattest since before the Georgia Senate seat runoff gave Democrats control of Congress. It’s now at just +82.0bps, whilst the 5s30s slope is now at flattest since March 2020, at +55.0bps. So a warning sign for those who believe in the yield curve as a recessionary indicator, albeit with some way to go before that flashes red. In Europe there was also a modest curve flattening, but yields moved lower across the board, with those on 10yr bunds (-2.6bps), OATs (-3.2bps) and BTPs (-5.6bps) all down by the close.

Over in equities, there was a decent rebound in the US following the recent selloff, with the S&P 500 (+1.42%) posting a solid gain. It was a very broad-based advance, with over 90% of the index’s members moving higher for the first time since mid-October. Every S&P sector increased, which was enough to compensate for the noticeable lag in mega-cap shares, with the FANG index gaining just +0.15%. The STOXX 600 decreased -1.15%, though that reflected the fact Europe closed ahead of the big reversal in sentiment the previous session.

Aside from Omicron, one of the other biggest stories yesterday was the decision by the OPEC+ group to continue with their production hike, which will add a further +400k barrels/day to global supply in January. The news initially sent oil prices sharply lower, with Brent crude falling to an intraday low beneath $66/bbl, before recovering to end the day back at $69.67/bl in light of the group saying that they could adjust their plans “pending further developments of the pandemic”, with the ability to “make immediate adjustments if required”. Even with the bounceback yesterday however, oil has been one of the worst-performing assets over recent weeks, with Brent hitting an intraday high of $86.7/bbl in late-October, followed by a November that marked its worst monthly performance since the pandemic began.

Overnight in Asia stocks are trading mostly higher with the KOSPI (+0.86%), Shanghai Composite (+0.58%), CSI (+0.35%) and the Nikkei (+0.29%) up but with the Hang Seng (-0.74%) under pressure amid the ongoing regulatory clampdown in technology from China as Didi prepares to delist on US markets.

Looking forward now, the main highlight on today’s calendar is the US jobs report for November, which comes less than two weeks’ away from the Fed’s meeting where they’ll decide on the pace of tapering. In terms of what to expect, our US economists are looking for nonfarm payrolls to grow by +600k, which would be the fastest pace of job growth since July, and that in turn would take the unemployment rate down to a post-pandemic low of 4.4%. Ahead of that, we had another decent weekly claims report (albeit that took place after the jobs report survey period), with the number for the week through November 26 coming in at a stronger-than-expected 222k (vs. 240k expected). The previous week’s number was also revised down -5k, sending the 4-week moving average down to its own post-pandemic low of 238.75k.

Looking at yesterday’s other data releases, the Euro Area unemployment rate fell to a post-pandemic low of 7.3% in October, in line with expectations. However producer price inflation shot up even faster than anticipated to +21.9% (vs. 19.0% expected).

To the day ahead now, and the aforementioned US jobs report for November will be the highlight. Other data releases include the services and composite PMIs for November from around the world, Euro Area retail sales for October, and in addition from the US, there’s October’s factory orders and the November ISM services index. From central banks, we’ll hear from ECB President Lagarde and chief economist Lane, the Fed’s Bullard and the BoE’s Saunders.


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