Omicron fears continue receding

Strong US retail sales provides upbeat market move

Omicron fears continued to fade overnight, in North America at least, propelling the S&P 500 and Dow Jones to record closes, lifting oil prices, and weighing on the US dollar. Even gold managed to recoup most of its intra-day losses as optimistic long positions were once again culled.

The upbeat mood was helped along by better than expected US Retail Sales and larger than expected drops in US crude oil and gasoline inventories, suggesting that despite the current virus wave, the US domestic economy continues to power forward. A dearth of heavy-duty data releases globally this week continues to leave markets driven by sentiment and by sentiment, I mean omicron headlines.

China has also shrugged of tightening virus measures in the city of Xi’an, and a Bloomberg report indicating that Evergrande Property has once again missed two offshore bond payments on Tuesday, totalling around USD 220 million. A Ministry of Finance official said that China would guide interest rates lower for 2022 government bond issuance, which despite sounding a little bit illegal potentially in other countries, is a reason for cheer in China stocks, which are performing well today. The controversial IPO of SenseTime in Hong Kong today, up 25.0%, is also lifting the animal spirits of local investors.

Today’s only significant data release in Asia, South Korean Industrial Production, rose to a 17-month high of 5.10% MoM. However, it was overshadowed by a virus-induced slump of 1.90% MoM by Retail Sales in November, with the Kospi gently lower today.

Tonight’s US Initial Jobless Claims will be of passing interest, a fall below 200,000 for the weekly number likely reinforcing the bullish sentiment dominating markets. Far more important will be China’s official Manufacturing and Non-Manufacturing PMIs for December released tomorrow morning. We should get a very binary outcome, up or down, on a decent deviation from the forecast 50.50 and 52.5 respectively. Otherwise, I expect the modestly bullish risk appetite washing through asset classes to continue as holiday season markets continue.

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