Chart of the Day
Fresh fears about the coronavirus caused the US 10-year yield to fall sharply last week, but much like in early November, it appears to be bouncing off its 200-day moving average. With that support in place, we may not see the 10-year yield fall further unless the Omicron strain really proves to be both more transmissible and more dangerous than previous variants. For now, many believe the transmissibility part to be true, but there is not much in the way of evidence about whether it is more deadly. Even if it is more concerning than previous variants, markets may be off the mark if it causes a new round of restrictions that lead to further inflationary supply pressures.
Macro
Despite various challenges from new lockdowns and supply shortages, the eurozone ESI is holding up.
In Turkey, the Economic Confidence Index fell in November, but not drastically considering what is going on in the financial markets, with the lira depreciating rapidly last week.
The early German data showed HICP inflation jumped to over 6% in November. We have to wait for the final release to see how much was driven by core inflation.
In China, the official manufacturing PMI rose to 50.1 in November, implying output is no longer falling.
Markets
WTI may also be set to bounce from its 200-day MA.
The US equity market enjoyed a decent rebound yesterday. In big picture terms, it has done much better than markets in Europe, where governments are announcing harder measures to stop the spread of the new Covid variant.
US investors are not completely sanguine. The small-cap Russell 2000, the constituents of which are more exposed to domestic economic conditions, fell yesterday and the ratio of the S&P 500 to the Russell has risen sharply, unlike in other countries.
EM indices also continued to fare relatively poorly.
While the VIX has fallen back, the MOVE index of implied bond market volatility is still high.
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