- Treasury yields and oil rise but possibly within bearish larger moves
- China tech plunges on US delisting worries
- The Reserve Bank of Australia releases a policy decision on Tuesday
- Eurozone GDP prints on Tuesday
- Reserve Bank of India announces a rate decision on Wednesday
- Olaf Scholz set to replace Angela Merkel as chancellor of Germany Wednesday
- China releases CPI and PPI information on Thursday
- US CPI is published on Friday
- The Stoxx Europe 600 rose 0.7%
- Futures on the S&P 500 rose 0.5%
- Futures on the NASDAQ 100 rose 0.2%
- Futures on the Dow Jones Industrial Average rose 0.5%
- The MSCI Asia Pacific Index fell 0.2%
- The MSCI Emerging Markets Index fell 0.9%
- The Dollar Index rose less than 0.1%
- The euro fell 0.2% to $1.1288
- The Japanese yen slumped 0.3% to 113.19 per dollar
- The offshore yuan was little changed at 6.3737 per dollar
- The British pound rose 0.2% to $1.3257
- The yield on 10-year Treasuries advanced four basis points to 1.39%
- Germany's 10-year yield was little changed at -0.38%
- Britain's 10-year yield rose two basis points to 0.77%
- Brent crude rose 1.5% to $70.96 a barrel
- Spot gold fell 0.2% to $1,780.31 an ounce
Key Events
On Monday, US benchmark futures for the S&P 500, Dow Jones, NASDAQ and Russell 2000, along with shares in Europe all rebounded on positive Omicron reports indicating the COVID variant might be less dangerous than previously thought.
Early data out of South Africa, where the strain was first isolated, shows that the mutation is milder than expected and is not leading to increased hospitalization. America's top epidemiologist, Anthony Fauci, said that initial reports about the variant are encouraging, as there didn't seem to be "a great degree of severity to Omicron" though he called for more research.
The dollar has edged higher and oil continues to rise.
Global Financial Affairs
In economic news, the data in the spotlight is US consumer prices, to be released on Friday, which are expected to reveal the sharpest yearly rise in decades, encouraging the Federal Reserve to speed up its effort to contain spiking inflation.
The Reflation Trade is in full display this morning with all major US contracts in the green, though led by contracts on the Russell 2000, representing small cap domestic companies reliant on an open economy. Dow futures, which includes blue chip value stocks, is the second-best performer, followed by SPX futures. Contracts on the Nasdaq 100 are lagging, after the underlying benchmark completed a bearish pattern last week.
European shares opened higher, bouncing back after last week's volatility. The Stoxx Europe 600 Index opened trading 0.7% higher. The U.K.'s FTSE 100 rallied with banks, commodities, and miners on the same cyclical rotation seen in US futures.
Today's market behavior follows Friday's pattern of investors cashing out of mega US tech shares whose valuations are exposed to selloffs as markets anticipate higher borrowing costs.
Last Friday's Nonfarm Payrolls release disappointed. Though US jobs increased by 210,000 last month, that was less than half the number a Reuters poll forecast. However, the unemployment rate fell to 4.2%, a significant decrease.
During Monday's Asia session, most regional benchmarks were lower. Hong Kong's Hang Seng sank 1.8%, dragged down by Chinese tech shares, including Alibaba (HK:9988) and Tencent (HK:0700), on fears both stocks would be delisted in the US. Today's selloff extends Friday's crash, in which the NASDAQ Golden Dragon China Index, a key gauge that includes Chinese tech stocks also listed in the US, plummeted 9.1%, the worst rout for the benchmark since it was launched in 2008.
Treasury yields, including for the 10-year note, rebounded from last week's plunge toward 1.350%, as investors locked in profits on a rally in the sovereign bonds. US bond rates are still a long way below the 1.65% level where they were in late November, ahead of Omicron concerns.
Rates completed a double top. A current rise would be considered a return move to retest the pattern's integrity.
The dollar climbed for the third of four sessions.
The greenback is forming a bullish pennant after its preceding advance. The USD is being whipsawed between a higher trajectory along a faster path to tighter monetary policy and defensive trading triggered by Omicron uncertainty. This is aptly illustrated on the technical chart as the currency struggles as it reaches a fork in the road—to continue higher with the rising channel or to complete an H&S top.
Bitcoin extended its selloff. The cryptocurrency recently completed a downloading H&S top, one that is too weak to develop a proper right shoulder, which helped bears push the digital token below its uptrend line since July. The cryptocurrency's next test is the September low at the $40,000 lever, after it achieved our $50,000 target.
Oil climbed after Saudi Arabia increased its crude pricing in Asia.
WTI is attempting to recover from its 12% plunge a week-and-a-half ago when Omicron first hit the news cycle. Since April, the price has cut below its uptrend line. However, it's still holding above the slower uptrend line since March.
We wouldn't be surprised after the sharp selloff on Nov. 26 if the current rise turns out to be part of a rising flag, bearish after a strong move lower.