Global Markets View - Dec 9, 2021
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* U.S. stocks indices ended near record highs and VIX fell to 19.9, aided by news suggesting the omicron variant of the coronavirus may not disrupt economies as much as feared.
* Pfizer and BioNTech indicated that a third dose of their COVID-19 vaccine neutralized omicron in laboratory tests, but that a two-dose regimen is less effective. So, there’s a bit of a race on now as to how quickly booster jabs can get rolled out and will countries be able to avoid lockdowns. Britain said it could implement tougher measures, including ordering employees to work from home and mandating vaccine passports for large venues, as early as Thursday.
* The US jobs market remains tight. The number of job openings across the country rose to a record 11 million in October from 10.6 million in the prior month. However, the quit rate for government and private-sector workers dipped to 2.8% in October from a record 3%. The decline came after three straight months of all-time highs.
* The US Fed’s more hawkish tilt has been digested and priced in. However, the CPI print to be released on Friday is forecasted at 6.7% yoy. Anything at or above 7% yoy is going to raise the heat at next week’s FOMC meeting.
* The benchmark U.S. 10-year Treasury yield rose for a third straight day, climbing above 1.5%. But the dollar slipped against several major currencies (DXY ended at 96) as easing concerns about Omicron helped support riskier currencies. Gold prices were unchanged at $1,784. Brent crude ended at $76.
* Shares in China’s Evergrande Group hit a record low after a missed debt payment deadline put the developer at risk of becoming the country’s biggest defaulter. The news produced limited global market impact because it was already well-priced by the market.
* In India, the MPC retained the repo rate at 4%, and maintained its stance as "accommodative" while continuing to normalize liquidity conditions through 14-day variable rate reverse repo (VRRR) quantum hike. Overall, the current policy remains as dovish as ever.
* Consumer behavior in India has seen some change due to the pandemic. Both high-end retail and travel is benefitting from excess savings and internalization of demand (i.e. those who travelled abroad are now shopping and travelling in India). So far, the strength of this demand hasn’t waned. This class of consumer is choosing tried and tested brands which is why established large brands are growing. With international travel still burdensome, domestic demand impulse from this class of consumer is expected to continue.
* Budget travel is also improving. And rural India continues to see sturdy FMCG demand likely because migrant labor hasn’t fully returned to large urban centers. This is probably why FMCG growth in mega cities is weak. High input prices will be passed on in coming quarters since businesses cannot absorb higher costs anymore.
* In the Auto space, investments and future plans of 2W & 3W in India continue to be dominated by electrification with 2W & 3W start-ups raising funds for capacity expansions. Suppliers continue to raise funds, invest and partner in battery, charging and other parts of the EV value chain. Increased investment is seen in the charging infrastructure space.
Source: ABSLAMC Research