Fri, Jan 21, 2022 @ 02:29 GMT
HomeContributorsFundamental AnalysisWHO Says It Is Too Early To Make Firm Conclusions On Omicron

WHO Says It Is Too Early To Make Firm Conclusions On Omicron

Market movers today

  • We kick off the week today with HICP figures out of Spain and Germany as a warm-up for tomorrow’s euro area data.
  • Overnight we expect another weak NBS PMI print from China.
  • Later in the week we have more interesting releases particularly from the US. Markets will focus on the jobs report and ISM figures.
  • We will also keep a close eye on potential new COVID-related restrictions in Europe and news on the newly observed COVID variant dubbed Omicron. Risk is improving this morning with oil prices and yields moving higher.
  • In Sweden, we receive final Q3 GDP data today. Additionally, the Social Democrats Magdalena Andersson get another shot as being voted as the new Swedish PM.

The 60 second overview

Omicron: On Friday, we published our initial take on the new B.1.1.529 variant, now called Omicron, Since then, WHO has said that the variant is of concern, see press release. We also know that the variant is spreading in many countries (confirmed or suspected cases in the UK, Belgium, Italy, Germany, the Netherlands, Australia, Hong Kong and Israel – to mention some) so it may become the dominating variant globally, just like we saw with Alpha and Delta. It is still early days so there are many things we do not know yet and it is too early to make any firm conclusions, as the WHO writes here. We still need to find out whether the variant is more infectious, more dangerous and/or better able to evade immunity. Some are arguing, however, that the variant seems less dangerous, see e.g. a comment from an expert in Israel in Haaretz. Anthony Fauci told President Joe Biden that it will take around two weeks to get more information on transmissibility, Vaccine producers are now studying what impact the new variant has on immunity and we should get the results within two weeks. BioNTech says they can update the Pfizer vaccine within six weeks and ship the first batches within 100 days if needed, Moderna says an updated version may be ready in early 2022.

New global macro forecasts: This morning we published our latest The Big Picture: Slower growth and rising inflation uncertainties, 29 November 2021, which presents our macro forecasts for the next couple of years for the biggest economies in the world. As the title eludes we are seeing economic growth moderating near-term as the spread of COVID-19 prompts new restrictions and monetary policies are tightened in both advanced and emerging market economies – we are seeing below-consensus growth rates in notably China and US next year, although economic activity should pick up in late spring as Covid restrictions are lifted and supply challenges ease. Meanwhile inflation has proven more persistent – and although we still expect inflation to moderate next year, an inflation surprise triggering more abrupt tightening by the big global central banks is a key downside risk to our forecast. Another key risk is new mutations like Omicron that may be immune to vaccines.

Equities: Friday’s markets were bloody, with synchronized risk-off across equities, bonds and commodities, as Covid fears gripped markets. It was a classic risk off session, with cyclicals clearly underperforming and VIX spiking at 30. Energy, autos and banks were hit the worst, with sharp declines in the -4% to -5% range. Stay at home-winners, such as online retailers, were the only companies higher as investors braced themselves for new lockdowns. Regionally, Europe was hit the worst while S&P 500 closed down -2.2%, Dow -2.5%, Nasdaq -2.2% and Russell 2000 a massive -3.6%. US futures are rebounding this morning but Asian markets remain muted (in the -0.5% range).

FI: The financial markets came under pressure on Friday on the back of the new mutation of the corona virus, which seems to be more infectious than previous variants and potentially more resistant to the vaccines. 10Y US Treasury declined 13bp and Bunds declined 9bp. The German curve flattened between 2Y and 10Y, and 5y5y EUR inflation swap declined 10bp and 10Y BTPS-Bund spread remained at 130bp and the Bund ASW-spread moved above 50bp.

FX: Risk sentiment sets the tone for FX. With the wash-out in all asset classes, the markets will (historically) start to contemplate when this sell-off has been enough.

Credit: Credit was under severe pressure on Friday. iTraxx Xover widened 22bp and closed in 290bp (the highest level since November last year). Main widened 4.4bp, closing in 57.8bp (also the highest level since November 2020). Cash bonds did not do better, with HY widening 22bp and IG 8bp.

Nordic macro

In Sweden, we receive final GDP data for Q3 today. The best “indication” we have is Statistics Sweden’s so-called GDP indicator, which printed +1.8% s.a. Additionally, ccording to this indicator, household consumption and the producing sector have lifted quarterly growth whereas net exports have moved in the opposite direction. However, this indicator has proven far from perfect historically, and actual real GDP paints a different picture compared to the indicator, which suggest that there is significant uncertainty as today’s print is concerned.

Additionally, the Social Democrats Magdalena Andersson gets another shot as being voted the new Swedish PM, after having been forced to step down after only 7 hours at the post last week. Most likely, she will pass the vote, and once again be named as the next Swedish PM.


Danske Bank
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