Market risk tone turned cautious, with mixed equity market performances in Asia-Pacific. The main Japanese index Nikkei 225 ended slightly higher, but there were lower outcomes in China, reflecting weaker tech stocks.
The latest COVID figures show a record rise of 2.5 million new cases globally, although symptoms appear less severe than the delta variant. PM Johnson said there was a “good chance” in the UK that no further COVID restrictions would need to be imposed in England despite soaring Omicron cases.
The final readings of the Eurozone December services PMI confirmed the preliminary ‘flash’ estimate showing a sizeable fall to 53.1 from 55.9 in November. At above 50, that still represents expansion in services activity but at the slowest pace since April amid rising COVID infection rates.
In the US, the December ADP employment report will provide an early indication of Friday’s official payrolls data. There is some uncertainty about the possible impact of Omicron, but labor market conditions are expected to have remained strong. Look for a 500k rise in ADP private-sector jobs which would add confidence to our central forecast for a more considerable rise in official payrolls than in November, which rose by just 210k.
The minutes of the December FOMC meeting will be released this evening. That was the meeting when the pace of tapering of asset purchases was accelerated, and The Fed dropped the word ‘transitory’ to describe inflation. The updated ‘dot plot’ also showed policymakers expecting three interest rate rises in 2022 with further increases forecast for subsequent years.
Prospects for higher UK interest rates and indications that there will likely be no further COVID restrictions in England saw GBP/USD above 1.35. Gilt yields also shifted higher, with the 10-Year yield rising to 1.085%. Brent crude oil meanwhile, rose above $80 a barrel as OPEC+ announced a modest rise in output.