US payrolls may have missed consensus (210k vs 550k) on Friday, the separate household survey was much, much better (1.1m employment increase). Other elements including the unemployment and participation rate were both the lowest/highest since spring 2020. ISM non-manufacturing confidence later hit a new all-time high at 69.1, driven by roaring business activity and incoming orders. The strong batch of data failed to alleviate Omicron’s concerns though. Markets didn’t feel like taking many risks ahead of the weekend. US stock indices fell almost 2% (Nasdaq). Core bond yields tumbled. The US outperformed even though the data cemented the Fed’s case for faster taper in December. The curve bull flattened, losing 2.5 bps (2y) to 10.1 bps (10y) with the latter breaking below the 1.41% neckline that supported a double top formation since September. German yields edged up to 3.1 bps lower (30y). Evaporating interest rate support hung in the balance with the risk-off for the dollar. EUR/USD whipsawed to close marginally higher at 1.1315. Japan’s yen and the Swiss franc felt good. USD/JPY finished at 112.8, EUR/CHF closed sub 1.04 for the first time since 2015. An almost 7 bps drop in UK gilt yields bruised sterling as well. EUR/GBP went into the weekend north of 0.85(5). Sentiment over the weekend turned for the better just a little. Premier Li end of last week fueled hopes for a reserve requirement ratio cut “at a proper time” but equity markets are not impressed (up to -2% in China). Besides Omicron, (repeated) defaulting Chinese real estate firms, as well as the tech crackdown, are grabbing most of the headlines. US bond yields do recover more than 4 bps after Friday’s steep drop and moves in the German Bund future suggests a higher yield opening as well. Today’s empty economic calendar suggests trading is at the mercy of sentiment and the technical charts. European/US stock futures are rising up to 1% but it’s too early to call. Regarding the interest rate markets, the (yield) bearish double top formation in the US 10y yield has been confirmed. The German variant finished last week below -0.35%, the November low and 61.8% retracement of the August-October upleg. Both spell more losses short-term and as long as the jury is out on whether the South African variant is a heavier burden for hospitals (thus forcing stronger mobility restrictions) than delta. We’ll be looking for the first clues regarding the matter somewhere by the end of this week. EUR/USD is at risk of losing 1.129 again, suggesting the pair for now is in the first place driven by yield dynamics.
Czech National Bank chief economist Kral said in an interview with local daily HN that market expectations for the December policy meeting are in line with the central bank’s forecast. The CNB will likely raise its policy rate (currently 2.75%) by at least another 50 bps at the December 22 policy meeting. Czech money markets currently put the policy rate peak at around 4% in 2022 compared to 3.75% put forward by the CNB last month. Kral confirms that the policy rate will temporarily need to exceed the 3% neutral level to battle inflation. He isn’t worried that this will come with a stronger currency as it won’t hurt the economy. November CPI data will be published on Friday and are expected to show a new acceleration (from 5.8% Y/Y in October). Kral puts the peak at 7%+ in the first months of 2022. EUR/CZK isn’t going anywhere this morning, being stuck near the middle of the 25.20-25.80 trading range in place since May.
Saudi Aramco, the Kingdom’s state oil producer, raised prices for all crude grades that will be shipped to Asia by 60 cents from December and to the US by 40-60 cents. The move had been by and large coming, but nevertheless stings only days after OPEC+ decided to proceed with planned production increases despite uncertainty over the new Covid-outbreak and with the cartel predicting the oil market to shift from supply deficit to supply surplus early next year. Brent crude trades slightly stronger this morning around $71.5/b, extending its rebound from last week’s low just above $65/b.