1 December, 2021

“Against the backdrop of Omicron uncertainty and rising Covid cases in Europe, the end of crisis-level interest rates in the US looms even larger following hawkish comments from Fed Chair Jerome Powell. Short-dated bonds and interest rate futures whipped lower after Powell told lawmakers it was time to retire his description of price pressures as transitory, and that policymakers would discuss a faster taper.”

Tim Hallinan, Trading Director

Main Headlines

US junk bonds fell last month by the most in more than a year on fears the spread of the Omicron coronavirus variant will hinder the ability of low-rated companies to repay their debts. A high-yield bond index compiled by Ice Data Services dropped just over 1% in November, marking only the second month this year in which the gauge has posted a negative total return and its worst showing since September last year. The decline was driven by a slide in the price of the debt, which offset the interest payments the bonds provide. Despite the selling, yields on junk bonds are still in line with levels from around the same time a year ago, signalling borrowing costs will remain near historically low levels for many borrowers.

KPMG risks a ban on bidding for public contracts if there is a repeat of recent scandals at the Big Four consultant, the UK Cabinet Office has warned. The threat to one of the UK government’s biggest providers of consulting services was made in a letter seeking assurances that there would be no further misconduct at the firm. KPMG’s reputation has suffered in recent years after a series of fines for misconduct. It is also under investigation over other allegations of malpractice. The firm was the third-biggest winner of public sector consulting contracts by value in the financial year to March 2021, behind Deloitte and PwC.

GBP

The pound is lower than the dollar but higher than the euro overnight. British retailers increased their prices for the first time in more than two years last month as the coronavirus pandemic hit global supply chains, limited staff availability and pushed up inflation for shoppers, a survey showed. With the BoE due to consider this month a first interest rate hike since the Covid crisis broke, the British Retail Consortium said shop prices rose by 0.3% compared with November 2020, the first annual increase since May 2019. “The impact of labour shortages, rising commodity prices and transportation costs have now very clearly taken their hold on consumer prices,” BRC chief executive Helen Dickinson said.

EUR

The euro is lower than most majors this morning. The head of Spain’s employers’ federation has pleaded with Madrid to scale down or delay labour rule changes that the government has promised Brussels it will deliver this year in return for billions of euros of EU funds. In an interview, Antonio Garamendi, head of the Spanish Confederation of Business Organisations, or CEOE, said botched reforms could hurt companies’ competitiveness. The changes being negotiated between Garamendi, the unions and the government are Spain’s highest profile EU commitment this year. They affect areas such as the rules for collective bargaining, temporary contracts, subcontracting and retraining schemes. The EU says the reforms have to be carried out on time if Spain is to access the €70bn of grants under the bloc’s coronavirus recovery plan. The next instalment of €14bn is due in the first quarter of next year.

USD

The dollar is stronger versus most majors in the early morning trade. The highest value of US mortgages eligible for federal government backing has been lifted to almost $1m, in a reflection of the surge in house prices during Covid. The Federal Housing Finance Agency said the biggest loan for a single-family property in high-cost areas including New York and Los Angeles that can be purchased by government-sponsored home loan agencies Fannie Mae and Freddie Mac will rise to $970,800 in 2022. This is an 18% increase in the so-called conforming loan limit set in 2021. In most of the US, the limit will rise to $647,200 from $548,250.

Markets

Stocks in Europe rebounded on Wednesday along with U.S. equity-index futures as traders assessed the latest news about the omicron variant and the Federal Reserve’s signal of stepped-up efforts to curb elevated inflation. Bonds declined. Mining, energy and travel stocks led a broad-based gain in the Stoxx Europe 600 index, all but wiping out Tuesday’s decline that capped only the third monthly loss for the benchmark this year. Eurozone purchasing managers’ gauges on Wednesday will provide a picture of the region’s major economies amid questions about the impact of the omicron strain on the global recovery. S&P 500 and Nasdaq 100 futures pushed higher, indicating stabilization after U.S. stocks slumped in the wake of Fed Chair Jerome Powell’s hawkish pivot. MSCI Inc.’s Asia-Pacific share index jumped the most since mid-October. The U.S. 10-year Treasury yield climbed but remained below 1.50%.

Main Economic Data/Central Banks/Government (All Times CET)

7:00 a.m.: Russia Nov. manufacturing PMI
8:00 a.m.: U.K. Nov. house prices
8:30 a.m.: Sweden Nov. manufacturing PMI
9:15 a.m.: Spain Nov. manufacturing PMI
9:45 a.m.: Italy Nov. manufacturing PMI
9:50 a.m.: France Nov. manufacturing PMI
9:55 a.m.: Germany Nov. manufacturing PMI
10:00 a.m.: Norway Nov. manufacturing PMI
10:00 a.m.: Euro-area Nov. manufacturing PMI
11:00 a.m.: OECD economic publishes outlook
3:00 p.m.: BOE’s Bailey speaks
3:00 p.m.: Riksbank’s Breman speaks
Genscape Europe ARA crude inventory report
Day one of OPEC meeting on production policy
EIA U.S. oil inventories

Corporate Events

Earnings include RBC, Synopsys, Snowflake, Okta, Veeva Systems, CrowdStrike, Splunk, nCino, Elastic NV, C3.ai

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