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[PODCAST] US Open Rundown 29th November 2021

  • Bourses in Europe are experiencing a mild broad-based rebound; US equity futures also see gains across the board  
  • South African Medical Association Chairwoman Coetzee said the new Omicron variant has resulted in mild symptoms so far  
  • DXY resides in a tight range, activity currencies are faring well; Friday's outperformers lag  
  • OPEC is to delay this week's JTC and JMMC meetings by two days. OPEC and OPEC+ meeting dates remain unchanged  Iranian nuclear talks to take place at 13:00GMT/08:00EST; Iran says 'firmly determined' to salvage nuclear deal  
  • Looking ahead, highlights include German national CPI, US Pending Sales, ECB's Lagarde, Fed's Williams, Powell

CORONAVIRUS SUMMARY

Below is a summary of all the key COVID developments from over the weekend. Click here for a more detailed summary.

GLOBAL: WHO says the likelihood of a potential further spread of Omicron COVID variant on a global level is high, according to a briefing; overall risk from the variant is assessed as "very high". (Newswires)

US: US President Biden said the White House team recommended new travel restrictions and added that they are currently not thinking about a new vaccine mandate. US NIH’s Fauci stated that Omicron was a ‘clarion call’ for people to get vaccinated. Furthermore, Fauci told US President Biden it will take about two more weeks to get more information regarding transmissibility of the Omicron variant and he continues to believe vaccines are likely to provide a degree of protection against severe COVID cases. Former FDA Commissioner Gottlieb said even if the South African variant can evade vaccines to a degree, it won't necessarily negate their effectiveness completely

SOUTH AFRICA: South African President Ramaphosa said the new variant is responsible for most cases in the most populated province of Gauteng. South African Medical Association Chairwoman Coetzee said the new Omicron variant has resulted in mild disease without prominent symptoms so far and could be treated at home. South African Health Minister said there is no need to panic over the Omicron variant. (Newswires)

EUROPE: ECB's Lagarde that ECB’s Lagarde that the eurozone is in better shape to respond to the new COVID wave and Omicron variant. France and the Netherlands have detected cases of Omicron.

UK: UK PM Johnson announced temporary measures to address the emergence of the Omicron variant which includes making face coverings compulsory for public transport and in shops although pubs and restaurants will be exempted. PM Johnson also stated that all international arrivals will take a Day 2 PCR test and will be required to self-isolate until they receive a negative result. UK Junior Health Minister does not anticipate tighter COVID rules in the UK in the next three weeks. (Newswires) Scottish First Minister Sturgeon and Welsh First Minister Drakeford have written a joint letter to UK PM Johnson to call for a "tougher four nations approach" to dealing with the Omicron variant. (Daily Record)

APAC: Australian borders will remain closed for another two weeks amid the Omicron COVID variant. Japanese PM Kishida said they are considering further border restrictions and Japan is to effectively ban all foreigners from entering its borders starting this month. (Newswires/NTV) South Korea is to restrict arrivals from South Africa and seven other countries.

VACCINE: Johnson and Johnson (JNJ) spokesperson said JNJ has already begun testing its vaccine's effectiveness against the new variant first identified in South Africa. It was also reported that Novavax (NVAX) initiated development of a new recombinant spike protein based on the known genetic sequence of the new variant, while it will have a new recombinant spike proton based on known genetic sequence of the new variant ready for testing and manufacturing within the next few weeks. (Newswires) AstraZeneca (AZN LN) said it is looking into the impact on the vaccine and will collect real world data against the new variant to compare it, while it is also testing a long-acting antibody combination against the new variant and is hopeful it will retain efficacy. (Newswires) Moderna (MRNA) Chief Medical Officer said they think Omicron may elude current vaccines but noted that a new vaccine for the variant could be ready early next year. (Newswires) BioNTech (BNTX/22UA GY) has started developing a new COVID vaccine under the assumption a variant vaccine is needed. (Newswires)

ASIA

Asia-Pac stocks traded cautiously and US equity futures rebounded from Friday’s hefty selling (S&P 500 -2.3%) as all focus remained on the Omicron variant after several countries announced restrictions and their first cases of the new variant, although markets took solace from reports that all cases so far from South Africa have been mild. Furthermore, NIH Director Collins was optimistic that current vaccines are likely to protect against the Omicron variant but also noted it was too early to know the answers, while Goldman Sachs doesn’t think the new variant is a sufficient reason to adjust its portfolio citing comments from South Africa’s NICD that the mutation is unlikely to be more malicious and existing vaccines will most likely remain effective at preventing hospitalizations and deaths. ASX 200 (-0.5%) is subdued after Australia registered its first cases of the Omicron variant which involved two people that arrived in Sydney from southern Africa and with the government reviewing its border reopening plans. Nikkei 225 (-1.6%) whipsawed whereby it initially slumped at the open due to the virus fears and currency-related headwinds but then recouped its losses and briefly returned flat as the mood gradually improved, before succumbing to a bout of late selling, and with mixed Retail Sales data adding to the indecision. Hang Seng (-1.0%) and Shanghai Comp. (Unch) weakened with Meituan the worst performer in Hong Kong after posting a quarterly loss and with casino names pressured by a crackdown in which police detained Suncity Group CEO and others after admitting to accusations including illegal cross border gambling. However, the losses in the mainland were cushioned after firm Industrial Profits data over the weekend and with local press noting expectations for China to adopt a more proactive macro policy next year. Finally, 10yr JGBs shrugged off the pullback seen in T-note and Bund futures, with price action kept afloat amid the cautious mood in stocks and the BoJ’s presence in the market for over JPY 900bln of JGBs mostly concentrated in 3yr-10yr maturities.

PBoC injected CNY 100bln via 7-day reverse repos with the rate at 2.20% for a CNY 50bln net injection. (Newswires)PBoC set USD/CNY mid-point at 6.3872 vs exp. 6.3805 (prev. 6.3936)

  • Chinese Industrial Profits YY (Oct) 24.6% (Prev. 16.3%)
  • Chinese Industrial Profits YTD YY (Oct) 42.2% (Prev. 44.7%)
  • Japanese Retail Sales MM (Oct) 1.1% vs. Exp. 1.0% (Prev. 2.7%, Rev. 2.8%)
  • Japanese Retail Sales YY (Oct) 0.9% vs. Exp. 1.1% (Prev. -0.6%, Rev. -0.5%)

CENTRAL BANKS

Fed’s Bostic (2021, 2024 voter) said each successive COVID variant slows the economy but to a lesser extent and noted that there is currently a lot of momentum in the economy, while he added that his team has been looking into how fast the Fed may need to reduce asset purchases to address inflation and he is open to accelerating the taper to provide optionality with end of Q1 or early Q2 next year in play for taper to end. Furthermore, he stated that a second rate increase could become necessary next year if the economy continues to run hotter than anticipated but added that new variant could extend COVID impact on the economy for longer than expected. (Newswires)

US President Biden said he spoke to the Fed about inflation and is confident that Fed Chair Powell and upcoming nominations to the Fed are focused on concerns regarding increasing prices. (Newswires)

ECB's Schnabel said it would be premature to tighten monetary policy now; reiterates that inflation is expected to decline gradually in the coming months, thinks inflation rate has peaked in November, inflation will not continue at the same paceInflation will trend back towards 2% next year.There are no signs inflation is getting out of control.

ECB’s Panetta said that there isn’t a need to intervene on inflation for now and that inflation is being driven by temporary factors, while he added that intervening would create more damage than benefit and suggested that the ECB doesn’t need to follow the Fed regarding monetary policy choices. (Newswires)

ECB's Villeroy said that economic impact from successive COVID waves have been less and less damaging; presumes Omicron should not alter the economic outlook that much. (Newswires)

ECB's de Guindos said the most concerning factor for Eurozone economic growth is inflation. He added it is important for all options to be kept open on monetary policy. (Newswires)

BoE is reportedly increasingly concerned regarding the building cladding crisis impact on financial stability and has been pressing lenders to audit exposure to potentially unsellable homes. (FT)

RBNZ's Chief Economist Young Ha said impact of the new variant would need to be dramatic to change the Cash Rate outlook and that they could pause tightening at the next meeting in February if Omicron is a game changer. (Newswires)

BoJ's Kuroda said he is quite sure that the domestic economy will overcome the impact of COVID-19 and would be in the recovery and growing phase within a few months. (Newswires)

US

US Senate back in session today with House back tomorrow. "Work goes on this week behind the scenes to prep Dems social spending bill for the Senate. But the main focus this week is funding the gov’t. The gov’t shuts down at 11:59:59 pm et Dec 3", via Fox. (Twitter)

UK/EU

UK government is preparing to abandon controversial plans that would force poorer pensioners to pay more for their social care, in order to avert a defeat in the Commons which would further damage PM Johnson’s authority. (The Observer)

Scottish National Party members voted to begin preparations for a central bank to be set up in the event of gaining independence from the UK. (FT)

EU ministers called for a new agreement with the UK to tackle the increase of migrants attempting to cross the Channel to the UK and French Interior Minister Darmanin said he wants to work with the UK on the migration issue but stressed that the UK must make itself less attractive for migrants. (FT/Sky News)

French Finance Minister says there is no major concern over domestic economic growth. (Newswires)

German State CPIs were in-line with expectations seen for the mainland metric - whereby the M/M is expected to contract and the Y/Y forecast to uptick.

EQUITIES

Bourses in Europe are experiencing a mild broad-based rebound (Euro Stoxx 50 +1.0%; Stoxx 600 +0.9%) following Friday's hefty COVID-induced losses. Desks over the weekend have been framing Friday's losses as somewhat overstretched in holiday-thinned liquidity, given how little is known about the Omicron variant itself. The strain will likely remain the market theme as scientists and policymakers factor in this new variant, whilst data from this point forth – including Friday's US labour market report - will likely be passed off as somewhat stale, and headline risk will likely be abundant. Thus far, symptoms from Omicron are seemingly milder than some of its predecessors, although governments and central banks will likely continue to express caution in this period of uncertainty. Back to price action, the momentum of the rebound has lost steam; US equity futures have also been drifting lower since the European cash open – with the RTY (+0.9%) was the laggard in early European trade vs the ES (+0.8%), NQ (+1.0%) and YM (+0.7%). European cash bourses have also been waning off best levels but remain in positive territory. Sectors are mostly in the green, but the breadth of the market has narrowed since the cash open. Travel & Leisure retains the top spot in what seems to be more a reversal of Friday's exaggerated underperformance as opposed to a fundamentally driven rebound – with more nations announcing travel restrictions to stem the spread of the variant. Oil & Gas has also trimmed some of Friday's losses as oil prices see a modest rebound relative to Friday's slump. On the other end of the spectrum, Healthcare sees mild losses as COVID-related names take a mild breather, although Moderna (+9.1% pre-market) gains ahead of the US open after its Chief Medical Officer suggested a new vaccine for the variant could be ready early next year. Meanwhile, Autos & Parts reside as the current laggard amid several bearish updates, including a Y/Y drop in German car exports - due to the chip shortage and supply bottlenecks – factors which the Daimler Truck CEO suggested will lead to billions of Euros in losses. Furthermore, auto supbt.aplier provider Faurecia (-5.9%) trades at the foot of the Stoxx 600 after slashing guidance – again a function of the chip shortage. In terms of Monday M&A, BT (+4.7%) shares opened higher by almost 10% following source reports in Indian press suggesting Reliance Industries is gearing up for a takeover approach of BT – reports that were subsequently rebuffed.

FX

USD - The Buck has bounced from Friday’s pullback lows on a mixture of short covering, consolidation and a somewhat more hopeful prognosis of SA’s new coronavirus strand compared to very early perceptions prompted by reports that the latest mutation would be even worse than the Delta variant. In DXY terms, a base above 96.000 is forming within a 93.366-144 band amidst a rebound in US Treasury yields and re-steepening along the curve following comments from Fed’s Bostic indicating a willingness to back faster QE tapering. Ahead, pending home sales and Dallas Fed business manufacturing along with more Fed rhetoric from Williams and chair Powell on the eve of month end.

AUD/CAD/NZD - No surprise to see the high beta and risk sensitive currencies take advantage of the somewhat calmer conditions plus a recovery in crude and other commodities that were decimated by the prospect of depressed demand due to the aforementioned Omicron outbreak. The Aussie is back over 0.7150 vs its US counterpart, the Loonie has pared back losses from sub-1.2750 with assistance from WTI’s recovery to top Usd 72/brl vs a Usd 67.40 trough on November 26 and the Kiwi is hovering above 0.6800 even though RBNZ chief economist Ha has warned that a pause in OCR tightening could occur if the fresh COVID-19 wave proves to be a ‘game-changer’.

JPY/EUR - The major laggards as sentiment stabilses, with the Yen midway between 112.99-113.88 parameters and hardly helped by mixed Japanese retail sales data, while the Euro has retreated below 1.1300 where 1.7 bn option expiry interest resides and a key Fib level just under the round number irrespective of strong German state inflation reports and encouraging pan Eurozone sentiment indicators, as more nations batten down the hatches to stem the spread of SA’s virus that has shown up in parts of the bloc.

GBP/CHF - Both narrowly divergent vs the Dollar, as Cable retains 1.3300+ status against the backdrop of retreating Gilt and Short Sterling futures even though UK consumer credit, mortgage lending and approvals are rather conflicting, while the Franc pivots 0.9250 and meanders from 1.0426 to 1.0453 against the Euro after the latest weekly update on Swiss bank sight deposits showing no sign of official intervention. However, Usd/Chf may veer towards 1.1 bn option expiries at the 0.9275 strike if risk appetite continues to improve ahead of KoF on Tuesday and monthly reserves data.

SCANDI/EM - Although Brent has bounced to the benefit of the Nok, Sek outperformance has ensued in wake of an upgrade to final Swedish Q3 GDP, while the Cnh and Cny are deriving support via a rise in Chinese industrial profits on a y/y basis and the Zar is breathing a sigh of relief on the aforementioned ‘better’ virus updates/assessments from SA on balance. Conversely, the Try is back under pressure post-a deterioration in Turkish economic sentiment vs smaller trade deficit as investors look forward to CPI at the end of the week. Meanwhile, Turkish President Erdogan provides no reprieve for the Lira as he once again defending his unorthodox view that higher interest rates lead to higher inflation.

Turkish President Erdogan says he has not changed regarding interest rates and inflation - will never defend rate hikes; says recent FX volatility is not based on fundamentals. (Newswires)

FIXED INCOME

It’s far too soon to suggest that further contagion from the latest COVID-19 mutation can be contained, but the market tone and price action indicates less concern and perhaps more confidence in collective efforts to deal with the new threat. On that note, Governments are deploying measures that have been effective during the pandemic and at least two makers of current vaccines have started work on drugs designed to immunise Omicron, while reports from the source appear less worrying than at first glance. Hence, Bunds, Gilts and US Treasuries are all recoiling amidst a reappraisal of the situation/outlook, albeit the former and latter holding off worst levels (171.81 and 130-20+ respectively, -53 ticks and -17/32 on the day), while the 10 year UK bond extended its reversal to a new 126.92 low (64 ticks below parity) alongside STIR contracts to deeper -2/-7.5 tick troughs.

COMMODITIES

WTI and Brent front-month futures consolidate following an overnight rebound – with WTI Jan back on a USD 71/bbl handle and Brent Feb just under USD 75/bbl – albeit still some way off from Friday's best levels which saw the former's high above USD 78/bbl and the latter's best north of USD 81/bbl. The week is packed with risks to the oil complex, including the resumption of Iranian nuclear talks (slated at 13:00GMT/08:00EST today) and the OPEC+ monthly confab. In terms of the former, little is expected in terms of progress unless the US agrees to adhere to Tehran's demand – which at this point seems unlikely. Tehran continues to seek the removal of US sanctions alongside assurances that the US will not withdraw from the deal. "The assertion that the US must 'change its approach if it wants progress' sets a challenging tone", Citi's analysts said, and the bank also expects parties to demand full access to Iranian nuclear facilities for verification of compliance. Further, the IAEA Chief met with Iranian officials last week; although concrete progress was sparse, the overall tone of the meeting was one of progress. "We remain of the opinion that additional Iranian supplies are unlikely to reach the market before the second half of 2022 at the earliest," Citi said. Meanwhile, reports suggested the US and allies have been debating a "Plan B" if talks were to collapse. NBC News – citing European diplomats, former US officials and experts – suggested that options included: 1) a skinny nuclear deal, 2) ramp up sanctions, 3) Launching operations to sabotage Iranian nuclear advances, 4) Military strikes, 5) persuading China to halt Iranian oil imports, albeit Iran and China recently signed a 25yr deal. Over to OPEC+, a rescheduling (in light of the Omicron variant) sees the OPEC and JTC meeting now on the 1st December, followed by the JMMC and OPEC+ on the 2nd. Sources on Friday suggested that members are leaning towards a pause in the planned monthly output, although Russian Deputy PM Novak hit the wires today and suggested there is no need for urgent measures in the oil market. Markets will likely be tested, and expectations massaged with several sources heading into the meeting later this week. Elsewhere, spot gold trades sideways just under the USD 1,800/oz and above a cluster of DMAs, including the 50 (1,790.60/oz), 200 (1,791.30/oz) and 100 (1,792.80/oz) awaiting the next catalyst. Over to base metals, LME copper recoups some of Friday's lost ground, with traders also citing the underlying demand emanating from the EV revolution.

OPEC rescheduled the JTC meeting from November 29th to December 1st and the JMMC meeting from November 30th to December 2nd, while planned OPEC and OPEC+ meeting dates remain unchanged and will take place on December 1st and December 2nd, respectively. There were reports last week that OPEC+ is leaning towards ditching an output hike as oil sinks on COVID fears and it was separately noted that the COVID variant adds bearishness to the weak oil outlook, according to an OPEC+ source, although a Russian source stated that they were not yet concerned. (Newswires)

EnergyIntel’s Bakr tweeted that the delays in meetings were because producers needed more time to understand the state of the market and real causes behind the USD 10/bbl drop, while member states are not going in with a fixed idea on what action to take and the outcome will have a to be collective. Furthermore, Bakr noted that some argue if OPEC+ changes current policy, it would perceived by some US officials as a political move that could result in more future SPR releases. (Twitter)

Russian Deputy PM Novak said there is no need for urgent measures in the oil market; OPEC+ partners have not asked for renegotiation of the OPEC+ deal amid the new COVID strain, Tass reports. Saudi Energy Minister says is not worried about the omicron COVID variant; declines to comment on OPEC+ plans ahead of its meeting this week. (Newswires)

OPEC Schedule: 1st Dec - OPEC (13:00GMT/08:00EST), JTC (15:00GMT/10:00EST); 2nd Dec JMMC (12:00GMT/07:00EST), OPEC+ (13:00GMT/08:00EST). (Twitter)

Morgan Stanley expects OPEC+ to shelve its planned output hike in January and keep its quota flat amid COVID uncertainty; forecasts Brent at USD 81.50/bbl in Q4 2021, USD 82.50/bbl in Q1 2022 and USD 87.5/bbl in Q2 2022. (Newswires)

India's coal supply to power plants in November was more than consumption; resulted in increase in coal stocks, according to a government statement. (Newswires)

GEOPOLITICAL

Iranian nuclear talks to take place at 13:00GMT/08:00EST. (Twitter) Iranian Foreign Ministry said Tehran will not hold bilateral talks with US delegation at Vienna nuclear talks. (Twitter) Russian Delegation to the Iranian nuclear talks said Russia is aware of the sticking points in talks but remain cautiously optimistic as there are no alternatives to successful negotiations. (Twitter)

UK and Israel are to formally agree on a new strategic plan for the next decade concerning cyber, tech, trade and defence, while they will work night and day to prevent the Iranian regime from becoming a nuclear power, according to their foreign ministers. (Telegraph)

US President Biden said he expects to speak to Russian President Putin soon and that the US supports Ukraine territorial integrity. (Newswires)

NATO Chief Stoltenberg said there are reasons to be concerned about Russia’s amassing of troops near Ukraine, but there should be no doubt about NATO’s resolve to “defend all allies in the region”. (EURACTIV)

Belarus Defence Minster said that NATO is building up offensive capabilities of armed forces near Belarus' border. (Newswires)

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