Easing omicron fears push US equities higher


Investors take comfort in reports that omicron cases have been relatively mild
Newsfeed07 Dec 2021
    Photo credit: AFP Photo


    US

    US equities rebounded from Friday’s (3 December) selloff as investors took comfort in reports that cases of the omicron variant have been relatively mild.

    The mood across markets was calmer on Monday as investors pointed to good news from South Africa that showed hospitals have not been overwhelmed by the latest wave of Covid cases. However, the CBOE volatility index remained elevated.

    “Although we do expect this volatility to continue, it very well could be a buying opportunity,” said a market strategist. “We’ve been living with Covid-19 for more than 20 months now. We’ve seen several variants and managed to move forward, and we expect a similar playbook to work once again.”

    Initial data from South Africa are “a bit encouraging regarding the severity”, Anthony Fauci, US President Joe Biden’s chief medical adviser, said on Sunday. Though, at the same time, he cautioned that it is too early to be definitive.

    “Admittedly, we don’t know how effective current vaccines are against omicron, or how transmissible it is, but we do know that the appetite for another nationwide shutdown is quite low and that these questions should be answered over the coming weeks,” the strategist said.

    The VIX, or so-called fear gauge, fell roughly three points to 27 on Monday after it failed to initially match a high corresponding to when the S&P 500 dropped below its 20 September low last week (ended 3 December). – Bloomberg News.

     

    EUROPE

    European Union (EU) health ministers are expected to discuss Tuesday (7 December) whether it is advisable to adjust the travel curbs the bloc’s nations have imposed on southern Africa in response to the omicron variant, an EU diplomat said.

    One option under consideration is to require a polymerase chain reaction test for vaccinated third country nationals from that region, which could allow a decision in a week or so to ease or lift some travel bans, according to an EU diplomat familiar with discussions ahead of Tuesday’s meeting in Brussels.

    European nations last month suspended most air travel from South Africa and six other countries in the region to stem the spread of the new variant while scientists try to assess its severity. Governments across the world tightened entry rules and some reintroduced quarantine measures, as airlines slashed thousands of flights.

    The EU coordinates travel guidelines within and into the bloc, but member nations are responsible for devising and implementing specific travel restrictions.

    The European Commission will brief health ministers on the pharmaceutical strategy for Europe, which was proposed last year in an effort to ensure quality and safety of medicines, while boosting the sector’s global competitiveness. – Bloomberg News.

    The Stoxx Europe 600 Index climbed 1.28% to 468.71 on Tuesday.

     

    JAPAN

    Toyota Motor (7203 JP) will break ground on its first battery factory in the US at a mega-site in North Carolina, joining an industrywide push as automakers accelerate efforts to electrify their fleets.

    The Japanese company will invest USD1.29b in the automotive battery manufacturing facility, which is scheduled to start production in 2025, the company said Monday (6 December). It is the latest in a slew of announcements by major automakers in recent months to ramp up capacity to manufacture batteries for a coming wave of electric vehicles (EVs).

    The plan to invest in the site on the outskirts of Greensboro, North Carolina, was previously reported by Bloomberg on 19 November. It is expected to be done in partnership with Toyota’s joint battery venture with Panasonic Corporation (6752 JP), a company called Prime Planet Energy & Solutions, people familiar with the matter said at the time. 

    The company has hastened its push to electrify more of its line-up in recent months. Toyota promised last week to be ready to sell only zero-emission cars in Europe by 2035, aligning with the EU’s green deal measures proposed earlier this year. It has been seen as a laggard in the US, but earlier this year announced plans for EVs.

    Even so, Toyota forecasts higher demand in the US for its gasoline-electric hybrid vehicles over the coming decade. By 2030, Toyota sees hybrids making up slightly more than half of the vehicles it sells in the US. Zero-emission EV and hydrogen-powered cars are estimated to claim 15% of sales, the automaker said in a briefing earlier this year.

    Toyota’s push into EVs comes as rivals have made aggressive commitments to electrify their line-ups and build out vehicle battery manufacturing infrastructure. President Joe Biden challenged the industry in August to make half of all vehicles sold in the US to be emissions-free by the end of the decade. – Bloomberg News.

    The Nikkei 225 Index opened 0.40% higher at 28,030.00 early Tuesday morning, after slipping 0.36% to 27,927.37 the previous session.

     

    MAINLAND CHINA & HONG KONG

    China tech shares tumbled on Monday (6 December), with a key gauge closing at its lowest level since launch last year as concerns mount over how much more pain Beijing is willing to inflict on the sector.

    The Hang Seng Tech Index closed down 3.3%, its biggest decline in nearly two months, to the lowest level since before its July 2020 inception. Alibaba Group Holding (9988 HK)and JD.com (9618 HK) were the biggest losers, each sinking at least 4.9%. Both companies are also traded in the US.

    China’s central bank on Monday evening cut the amount of cash most lenders must hold in reserve to boost a slow economy, a move that a securities firm said will do little to lift sentiment in Hong Kong shares as investors are more concerned about regulatory risk.

    Pressure from both US and Chinese regulators has worsened sentiment on tech shares after a disappointing earnings season. The Hang Seng Tech Index has plunged nearly 48% from a February peak, wiping out about USD1.5t of combined market value of its members.

    US institutional investors own around USD700b of Chinese stocks across A-shares, H-shares, and American Depositary Receipts. American mutual funds would take up to two months to unwind their holdings in US- or Hong Kong-listed Chinese stocks, several analysts wrote in a note on Monday.

    The US market has offered higher valuation multiples than Hong Kong for Chinese companies seeking to go public, thanks to liquidity and investor composition reasons, according to the note.

    Hong Kong’s benchmark Hang Seng Index fell 1.76% to 23,349.38, the lowest since September 2020. Meanwhile, China’s CSI 300 Index erased earlier gain to close 0.2% lower, its first decline in four sessions. The Shanghai Composite Index lost 0.50% to 3,589.31. – Bloomberg News.

     

    REST OF ASIA

    A closely watched gauge of Australian job vacancies jumped in response to an easing of coronavirus restrictions across the nation’s east coast, signalling a strong rebound in the labour market is in the offing.

    Australia & New Zealand Banking Group’s monthly help-wanted ads surged 7.4% in November to be a record 44.2% above their pre-pandemic level. The rise reflects a robust recovery in the nation’s two largest states of New South Wales and Victoria, where newly lodged ads jumped about 17% and 15%, respectively.

    The result suggests the economy’s recovery is gaining momentum after a lockdown-induced contraction in the third quarter that helped push unemployment to 5.2%. The Reserve Bank of Australia (RBA) is using record low interest rates to try to tighten the labour market sufficiently to unleash faster wages growth and return inflation to the 2.5% midpoint of its target.

    While the RBA reckons it will take about two years for the economy’s strength to translate into faster price gains and rate lift off, investors are more optimistic. They are predicting inflation will revive much quicker and are pricing in rate increases from around the middle of next year.

    The economist expects annual wages growth will climb to around 3% in the second half of next year from a tepid 2.2% at present. – Bloomberg News.

    Australia’s S&P/ASX 200 Index rose 0.45% to 7,277.50 in early-Tuesday trading. It gained 0.05% to 7,245.10 on Monday.

    South Korea’s Kospi Index fell 0.29% to 2,964.55 at the open on Tuesday. It added 0.17% to 2,973.25 the previous session.

    The Taiwan Stock Exchange Weighted Index shed 0.05% to 17,688.21.

     

    CURRENCIES

    Money managers are taking advantage of discounted prices to take on more Brazil risk before the country’s assets are hit by volatility tied to next year’s presidential elections. Their top pick? The battered real.

    The currency, which is set for a fifth straight year of losses, is seen as benefiting from higher interest rates, with the Selic expected to reach double digits early in 2022 as the central bank struggles against inflation.

    In the coming months, the main driver will be the upcoming elections – specifically, a more moderate candidate that can break the left-right polarisation of former president Luiz Inacio Lula da Silva and incumbent Jair Bolsonaro. The viability of such a ticket, dubbed “third-way”, will move assets in 2022.

    Money managers are also stock picking, looking for names attractive enough to face the adverse macro environment and the migration to fixed income assets.

    The Brazilian currency is back to fund managers’ bets, after losing almost a third of its value since the beginning of the current administration. The preference is to buy the real against other emerging currencies, amid the volatility that tends to continue with the 2022 elections.

    Brazil’s central bank will likely deliver another 150 bps rate increase on Wednesday (8 December) and keep a more hawkish tone against inflation, according to analysts. – Bloomberg News.

    On Monday, the US Dollar Index rose 0.22% to 96.328, the euro fell 0.27% to USD1.1285, the pound upped 0.21% to USD1.3264, and the yen weakened 0.60% to 113.48 per dollar.

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