Omicron fears, BBB derailed, China rate cut, Zegna debut

© Reuters

By Geoffrey Smith – Global markets rocked by the Omicron Covid-19 variant, as Europe imposes its first full lockdown in a year. Joe Biden’s signing spending bill is in trouble after a key senator refused to back it. Stocks should open sharply lower due to a combination of these factors. China tells the world that it always loosens its monetary policy even as everyone (except Turkey) tightens it. And oil is plummeting as feelings of risk aversion increase. Here’s what you need to know about the financial markets on Monday, December 20.

1. Omicron shakes up global markets

Fears of the Omicron variant of Covid-19 rocked global markets after various countries in Europe stopped its spread.

The index fell 1.5% while European national stock exchanges fell as much as 4.9% (Copenhagen suffers from a 10% drop in Novo Nordisk (NYSE 🙂 stock due to issues with its anti-obesity drug). The euro appreciated against the dollar, but spreads on peripheral bonds in the euro zone widened.

Over the weekend, the Netherlands all non-essential stores until January 14e, while the UK hinted at introducing tougher measures this week. Germany has effectively banned arrivals from the UK, following similar measures taken by France last week.

In slightly better news, further evidence that the very mutations that make Omicron more transmissible may also reduce its ability to damage the lungs, making it less dangerous than previous variants.

2. Manchin derails BBB

US President Joe Biden’s $ 2 trillion Build Back Better bill is under threat after West Virginia Senator Joe Manchin said it. This means that the bill cannot pass without the support of Republicans in the Senate, which seems all but ruled out.

Failure to pass the bill would risk cementing perceptions of the Capitol Hill Democratic caucus as being too divided to govern effectively, hurting their prospects for next year’s midterm election. Likewise, the opposition of Manchin – one of the most conservative Democratic lawmakers – reflects the suspicion on the ground about the party’s tax and spending program.

Goldman Sachs analysts cut their growth forecast for the US economy next year in response to the news, saying it had offset a significant fiscal stimulus boost.

3. US stocks should open lower as Covid infections peak in 3 months

US stocks are expected to open the week sharply lower later following a combination of Omicron and Manchin news.

As of 6:20 a.m. ET (11:20 a.m. GMT), they were down 410 points, or 1.2%, while they were down 1.3% and 1.5%. All three indices fell on Friday, with the cyclical Dow significantly underperforming.

The 7-day average of new Covid-19 infections peaked in nearly three months over the weekend, amid signs of Omicron that had already started. It is starting to show up in various data points such as restaurant reservations.

Actions likely to be targeted include Modern (NASDAQ :), which said trial data shows a booster of its Covid-19 vaccine against Omicron, as well as Italian fashion group Zegna, which is making its NYSE debut.

4. The Chinese central bank sends a signal

The central bank of China for a symbolic amount, in an attempt to reassure local markets that it will not get caught up in a global race to tighten monetary policy. It also hinted at further easing next year.

The People’s Bank of China cut its rate by 5 basis points to 3.80%, the first time it has cut in nearly two years. However, such a small cut – to an instrument which is one of many it uses to fine-tune monetary policy – is unlikely to have a significant impact on its own.

This move will always be welcomed by a real estate sector for which financing conditions have tightened sharply in recent weeks as capital markets have effectively closed to new debt issues from all but the most secure developers. Kaisa, one of the many developers currently in default, previously appointed Houlihan Lokey (NYSE 🙂 to advise him on a debt restructuring.

5, Oil tumbles despite Libya shutdown, CFTC data

fell as Europe’s decision to restrict mobility sparked fears of broader measures to kill demand from other countries. The main risk in this regard comes from China’s zero tolerance policy towards Covid-19 and its willingness to quickly impose lockdowns in response to even small and localized epidemics.

As of 6:35 a.m. ET, U.S. crude futures were down 3.5% to $ 68.36 a barrel, after hitting a two-week low. Futures contracts fell 2.8% to $ 71.43 per barrel.

All this despite news that Libya’s largest oil field, taking 284,000 barrels per day of production offline, barely a week before national elections scheduled in the country. In addition, data from Friday showed that the pace of sales by speculative investors slowed significantly last week.

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