Markets Jolted by Omicron Fears

November 30, 2021

Each month, no two-day sequence produces a heavier data release flow than the last business day on one month and first business day of the next. Navigating that period this time was magnified by worrisome developments in the race to understand the new Omicron variant of the Covid-19 pandemic. The CEO of Moderna, whose vaccine has been extremely effective thus far, warned that vaccines probably will not be as effective against Omicron. WHO officials also expressed concern over the new mutation’s ease of spread, and the number of governments imposing travel restrictions mounted further.

The dollar and equities have not fared well. The weighted dollar index dropped 0.7% overnight, including losses of 1.0% against the yen, 0.9% versus the euro and Swiss franc and 0.7% relative to sterling. A notable exception to the dollar’s retreat from elevated levels was the Turkish lira against which the greenback appreciated by another 2.2% overnight. Major U.S. stock indices have tumbled 0.7-1.0%. In Asia, equity markets slumped 1.6% or more in Japan, Hong Kong, Singapore, and South Korea. By comparison, key European bourses are down less than 0.5% in the U.K. , France and Germany for instance.

Among commodities, the price of WTI oil tumbled 3.6%, and that of gold is 0.6% softer.

Ten-year sovereign debt yields continued their retreat overnight, dropping six basis points in the U.S. and U.K., four basis points in France, three basis points in Germany, Italy and Spain and a basis point in Japan.

By and large, today’s deluge of data indicate slower activity even before today’s Omicron news but no respite in the widely shared spike of inflation.

Consumer confidence in the United States weakened much¬† more than forecast in November to an eight-month low, according to the monthly Conference Board’s measure. The Chicago regional purchasing managers index dropped 6.6 points to a 9-month low. Meantime, U.S. house price inflation according to the FHFA and Case Shiller surveys remained well into double digits at 17.7% and 19.1%, respectively, in September.

Canadian real GDP rebounded 5.4% at a seasonally adjusted annualized rate in 3Q 2021 from a 3.2% contraction sustained in the second quarter. GDP had plunged 5.2% in 2020, and the most timely indicator of Canadian economic momentum — a monthly estimate of GDP calculated from the supply side industry by industry — recorded just a 0.1% uptick in September as industrial production (-0.6%) sank for the third time in five months.

In South Africa where Omicron was first identified and home to the world’s higher jobless rate, unemployment rose to 34.9% last quarter. Such had been below 24% when the pandemic started.

China’s government-authorized NBS purchasing manager indices in November printed at a 3-month low of 52.3 among non-manufacturing firms and a 3-month high of 50.1 (still connoting stagnation) among manufacturers.

In Japan, industrial production rose 1.1% in October after diving 5.4% in September. Analysts were looking for a larger rebound than reported, and officials characterized the trend as “pausing” for a third straight month. Compared to October 2020, IP was down 4.7% or twice as much as the on-year decline posted in September. Construction orders had been 27.3% higher than a year earlier in September, but their year-on-year increase slowed to just 2.1% in October. On a brighter note, housing starts were 10.4% greater than in October 2020, their biggest such advance in almost five years.

Euroland’s 4.9% rate of inflation in November was 0.4 percentage points higher than forecast and the most since July 1991. The energy component swelled to a year-on-year advance of 27.4% versus a 12-month drop of 8.3% recorded in November 2020. Among the four largest economies using the euro, inflation between November 2020 and November 2021 rose from -0.7% to +6.0% in Germany, from 0.2% to 3.4% in France, from -0.3% to +4.0% in Italy and from -0.8% to +5.6% in Spain.

French producer price inflation climbed to a record high of 14.9% in October. Austrian PPI inflation of 13.9% that month was the most in at least 22 years.

Polish and Portuguese CPI inflation  of 7.7% and 2.6% in November were at their highest levels in 251 and 105 months.

The KOF-compiled Swiss leading indicator weakened for a sixth straight time to a nine-month low in November.

The ANZ-compiled index of business confidence in New Zealand fell 3 points to a 14-month low of -16.4 in November.

South Korean industrial production posted a third straight monthly drop in October and the largest slide (3%) in that trio. South Korean retail sales edged only 0.2% higher last month but was 7.4% greater than a year earlier.

Spanish retail sales dipped 0.1% on month and fell 0.7% on year in October.

Retail sales in Hong Kong strengthened to a 12-month 9.4% advance in October. Like other retail sales reports, this data reflects diminishing restrictions against social activities. Omicron puts all that in jeopardy.

Danish GDP rose 0.9% in 3Q 2021, less than half as much as in the second quarter, which shrunk its four-quarter rate of increase to 3.6%.

Czech real GDP went up 1.5% in 3Q and was 3.1% greater than a year earlier.

Polish GDP increased 2.3% last quarter, but the on-year advance was cut roughly in half to 5.3%.

Belgian GDP growth last quarter was revised slightly upward to 2.0% and associated with a 4.9% increase versus the same quarter a year earlier.

Italian GDP grew 2.6% on quarter and 3.9% from the third quarter of 2020.

Australia’s current account surplus widened last quarter to a record high of A$ 23.9 billion.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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