Omicron not yet a problem for the US economy; dollar firms
Omicron fears are easing on growing evidence that the fast-spreading variant leads to milder symptoms. This has prompted optimism about the US growth outlook as the strain has not yet weighed on economic data, despite the surging daily cases of the past week.
The Richmond Fed’s manufacturing survey released on Tuesday rose in December beating consensus estimates. Firms reported their intention to continue raising wages to attract and retain skilled employees, reinforcing fears that inflationary pressures have not yet peaked. This could prove to be a major driving force for the US dollar as the Fed has made clear that its current priority is to combat rising inflation.
The US dollar has moved slightly lower on Wednesday against a basket of currencies, while the 10-year Treasury yields ticked higher. Meanwhile, the Japanese yen emerged today as the biggest loser in the FX arena, retreating against the euro and the greenback. Moreover, commodity based currencies such as the loonie and the aussie are struggling for a second consecutive day.
Has the Wall Street party paused?
On Tuesday, the Dow Jones climbed for a fifth consecutive session, while the S&P 500 and Nasdaq Composite fell by 0.1% and 0.6%, respectively. The substantially low trading volumes exacerbated market fluctuations, with investors shifting from tech and growth stocks into value-oriented names. Moreover, stocks benefitting from the reopening activity outperformed as the Centers for Disease Control (CDC) shortened its isolation guidance for asymptomatic Americans who test positive from ten to five days.
Futures for the major US indices are pointing for a muted opening on Wednesday as investors assess the economic implications of Omicron. Moreover, at the time of writing the European Stoxx 600 index is in the green, while in Asia, Hong Kong’s Hang Seng Index closed 0.83% lower, weighed by the worsening sentiment in China due to Beijing’s tightening of overseas share sales and property sector related risks. Oil prices are losing ground after a strong rebound over the past week, while gold also suffered minor losses on the back of rising long-dated US Treasury yields.
In other news, Elon Musk continued the trimming of his Tesla holdings, selling another 1.02 billion shares of the electric vehicle manufacturer.