Global Markets View - Dec 8, 2021
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* With the market mood notably more upbeat, US benchmarks closed higher on Tue with the S&P500 up 2% and the Nasdaq rallying 3%. VIX fell 20% to 22. The US 10-yr was flat at 1.48%, the Dollar Index ended flat at 96, and Gold was also unchanged at $1,785. Brent crude ended up 3% at $75.
* Risk assets are recovering this week after initial data showed the omicron variant is less severe than originally feared and that the surge in omicron cases hasn’t overwhelmed hospitals. Several health experts across the globe, including the U.S.’s Dr. Anthony Fauci, have said omicron symptoms appear milder, so far. Additionally, research showed that a Covid-19 vaccine from GlaxoSmithKline Plc and Canada’s Medicago Inc. was effective against multiple variants of the disease.
* However, equity markets could still be in for further turbulence amid resurfacing geopolitical tensions. The threat of sanctions still loom if Russia invades Ukraine, following a call between U.S. and Russian leaders Tuesday. China threatened the U.S. with retaliation against its decision to declare a diplomatic boycott of the Winter Olympics. And Treasury Secretary Janet Yellen said that U.S. reliance on foreign supply chains has proved a vulnerability, boosting policies that may be considered protectionist.
* Market focus will shift to the new inflation data later this week. The consumer price index, which is expected to be even hotter than the prior month, could become the catalyst for the Fed to deliver faster tightening of its policies. Comments by Fed officials suggest the central bank is likely to decide to double the pace of its taper to $30 billion a month at its December meeting next week. Initial discussions could also begin as soon as the December meeting about when to raise interest rates and by how much next year.
* Economic data globally continues to be strong.
* US trade deficit shrunk as exports accelerated 8% to an all-time high of $224 billion. The surge in exports eclipsed a 1% increase in imports to $290 billion.
* Euro zone economy expanded 3.9% yoy driven by household consumption showing the economy continued to recover from the deep pandemic-induced recession in 2020.
* Chinese exports rose 22% in dollar terms (versus expectations of 20%) from a year earlier to almost $326 billion, while imports grew 31.7% (versus expectations of 21.5%). Robust exports reflect continued global demand for Chinese goods. The rebound in import growth reflects a recovery in production conditions in November following constraints induced by power shortages.
* In China, the latest Politburo meeting and RRR cut confirmed that policymakers have focused on stabilizing growth by shifting to an easing mode. The recent dovish signals have reduced the risk to China’s next year's GDP growth, but property market developments remain the key to watch in the coming months.
* RBI will announce its bi monthly policy today. RBI is expected to hold rates steady and maintain status quo on guidance too. Uncertainty regarding omicron variant and uneven recovery would keep MPC tilted towards growth although risks to RBI FY22 CPI projection have risen materially to the upside.