Omicron turns from bad Santa to good Santa

US equity markets jump on positive Omicron reports

A cocktail containing better US Q3 GDP data, along with positive omicron headlines further inoculated financial markets against a year-end sell-off overnight. Mostly, it was Scottish and Imperial College London’s studies that back up preliminary South African data, suggesting that omicron is far more contagious than delta, but much less likely to put you in hospital. Of course, with case numbers exploding across the world, the sheer volume of omicron cases means that for health systems, omicron could mathematically and statistically be a zero-sum game versus delta.

Markets don’t concern themselves with these sorts of “slapping you in the face” details if the headlines agree with the narrative that they want to hear. Unsurprisingly in New York, therefore, equities powered higher along with oil, and the US dollar staged a sharp retreat as defensive positioning was unwound, although the bond market was sharply unchanged. So, markets and investors will get their “Santa/Christmas rally” by the looks of it. On a personal level, it is the only question I have been asked all week. It has become so annoying that I have contemplated breaking wrapped Christmas presents and taking scissors to soft toys.

From here, we are probably going to need some more omicron headlines along the lines of hospitalisations and deaths soar with total cases to turn the markets from their perpetual, central bank QE-induced perpetual buy-the-dip in everything course. The data calendar in the US sees jobless claims, durable goods and personal spending and income released tonight, the last major dataset to be released globally for this year. It would take a serious negative divergence by the data to upset the applecart of bulls, and likely only temporarily.

Thereafter, we will be left to the tender mercies of omicron headlines until the new year, and even that potency now appears to be fading. Only Vladimir Putin deciding to holiday over the Ukrainian border changes that narrative. Think much lower equities, lower everything in Europe, USD 150 oil, a much higher dollar and Swiss franc with plunging treasury yields. But I don’t want to be the Grinch-ski who stole Christmas.

In Asia, the calendar today is dead with only Singapore Inflation for November to relieve the monotony. Higher than expected prints could put another tightening by the MAS back on the table and see local equity weakness. Otherwise, we are in a hurry-up-and-wait mode in Asia today.

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