Omicron Variant Rapidly Spreading; Biden to Address Covid Situation on Tuesday
China’s central bank cuts main interest rate first time in 20 months as other central banks tighten
In Today’s Digital Newspaper
Market Focus:
• U.S., world equities slump on rising Covid cases, Manchin statement on BBB
• Goldman Sachs economists cut U.S. 2022 growth forecast
• Central banks focus on dealing with inflation
• American savings boom coming to an end
• Freight transportation cost increases aren’t dissipating
• Lumber prices surging again
• Europe bracing for energy shortages as freezing weather set to boost demand
Policy Focus:
• Will White House statement about Manchin’s retreat on BBB impact other initiatives?
• Congress may need to pass another Covid relief bill
China Update:
• China's central bank cut its main interest rate for first time in 20 months
• Chinese tennis star Peng Shuai denies making sexual assault allegations
• Hong Kong voted in first election since draconian national-security law
• China's wealthiest real-estate magnates lost a combined $46 billion this year
Energy & Climate Change:
• Still waiting on EPA RFS proposals being published
Coronavirus Update:
• President Biden on Tuesday will speak about Covid
• Fauci warns U.S. in for hard winter as Omicron spreads
• Lawmakers test positive for Covid
• Moderna: Covid-19 booster dose works against Omicron variant in lab tests
• Omicron study results
• Biden-administration mandate reinstated
• Pfizer-BioNTech Covid-19 vaccine failed to produce adequate immune response in children
• Covid-19 again playing havoc with professional sports
Congress:
• Former Sen. Johnny Isakson dies at 76
• U.S. lawmakers traded $631 million worth of securities in 2021
Other Items of Note:
• Russia releases list of demands to ease tensions on its border with Ukraine
• NASA’s James Webb Space Telescope, biggest ever built ready for blast-off
MARKET FOCUS
Equities today: European stocks are set to join the worldwide selloff with Biden’s economic agenda in limbo and fresh Covid lockdowns hitting Europe. The selloff began during the session in Asia, where the Hang Seng Index fell 2%, and then extended to Europe, where the Euro Stoxx 50 slid nearly 3% by mid-morning trade. U.S., stock futures were off 2% at one point, and oil got hammered, with WTI crude futures slumping as much as 5.5% to $66.80/bbl. Asian equities finished with sizable losses to start the week on Omicron concerns and a focus on Fed policy. The Nikkei dropped 607.87 points, 2.13%, at 27,937.81. The Hang Seng Index lost 447.77 points, 1.93%, at 22,744.86. European equities are lower but have lifted off initial declines in early trading. The Stoxx 600 was down 1.3% while regional markets are down 0.9% to 1.8%.
U.S. equities Friday: The Dow finished lower, unable to poke into positive territory at all during the session while the Nasdaq only finished slightly weaker. The Dow dropped 532.20 points, 1.48%, at 35,365.44. The Nasdaq declined 10.75 points, 0.07%, at 15,169.68. The S&P 500 was down 48.03 points, 1.03%, at 4,620.64.
On tap today:
• Conference Board's leading economic index for November is expected to increase 0.9% from one month earlier. (10 a.m. ET)
• USDA Grain Export Inspections report, 11 a.m. ET.
• USDA Milk Production report, 3 p.m. ET
With BBB looking dead, Goldman Sachs economists cut their U.S. 2022 growth forecast. Citing the "apparent demise" of Build Back Better, the Wall Street bank now expects GDP to grow at an annualized pace of 2% in the first quarter, down from 3% previously. Goldman Sachs also trimmed its GDP forecasts for the second quarter to 3% from 3.5% and the third quarter to 2.75% from 3%. It pointed to the expiration of the child tax credit and the lack of spending in other areas that had been anticipated.
With inflation on the rise, central banks focus on dealing with rising prices. The Omicron variant is circling the globe, closing borders and sparking new restrictions on economic activity. But central banks, instead of loosening monetary policy to prop up their economies as they did at the start of the pandemic, are moving to unwind stimulus and raise interest rates. Central-bank officials worry that rather than simply threatening to curtail economic growth, a surge in Covid-19 cases could also prolong supply-chain disruptions and keep inflation elevated. In the past week, the Federal Reserve, the Bank of England and the European Central Bank all moved to tighten monetary policy in response to inflation concerns.
American savings boom is coming to an end. Federal Reserve Chairman Jerome Powell said last week that booming stock markets, home prices and savings are probably leading some people to stay home rather than return to work, with perhaps some couples moving from dual- to single-income households. That is consistent with past research showing that willingness to work depends on one’s finances, reports the Wall Street Journal (link). If so, then the labor force may get a boost as those savings — from stimulus checks, enhanced jobless benefits and a boost in the 2021 child tax credit — are whittled down.
Freight transportation cost increases aren’t dissipating as a turbulent year in shipping markets closes. The surging spot rates of the past year are set to translate into steep price increases in 2022, the Wall Street Journal writes (link), as freight carriers and other operators across supply chains flex their leverage in new contract negotiations. Experts say shipping demand still far outweighs tight capacity across most transportation and logistics markets. Executives say container shipping rates could double the level of annual agreements that were struck in early 2021, and some trucking companies are asking for and getting double-digit increases in contract pricing. Operators say their expenses are also rising, including higher labor costs as they raise wages to retain workers. Big retailers and manufacturers may have the scale to minimize some cost increases, but smaller shippers likely have little room to shop around.
Market perspectives:
• Outside markets: The U.S. dollar index is nearly unchanged with only the euro slightly higher versus the greenback. The yield on the 10-year U.S. Treasury note has fallen to trade under 1.39% with a lower tone in global government bond yields. Gold and silver are seeing selling pressure, with gold under $1,798 per troy ounce and silver under $22.30 per troy ounce.
• Crude oil is under pressure ahead of U.S. trading, with U.S. crude around $68.05 per barrel and Brent around $71.30 per barrel. Futures were under pressure in Asian action, with U.S. crude down $1.76 at $68.96 per barrel and Brent down $1.69 at $71.83 per barrel.
• Lumber prices are surging again. Futures for January delivery ended Friday at $1,089.10 per thousand board feet, twice the price for a prompt delivery in mid-November. Analysts and traders say conditions are ripe for prices to keep climbing through winter. Flooding in British Columbia has cut off sawmills from forests and customers, unusually warm autumn weather has extended the building season and wood buyers are loading up in fear of further price increases and supply problems.
• CFTC Commitments of Traders report (Source: Barron’s):
• Europe is bracing for energy shortages this week as freezing weather is set to boost demand at a time supply just can’t keep up. Temperatures are forecast to fall below zero degrees Celsius in several European capitals this week, straining electricity grids already coping with low wind speeds and severe nuclear outages in France. Meanwhile, Russia signaled it intends to keep natural gas flows through a major transit route to Germany limited on Monday after capping supplies over the weekend.
• NWS weather: Unsettled weather lingers over the Pacific Northwest and the northern Rockies as the next wave of moisture reaches the West Coast... ...Low pressure system in the Gulf of Mexico to deliver heavy showers and thunderstorms to Florida and the Southeast coast... ...Dry and mild throughout much of the nation's midsection but cold with occasional light snow across the northern tier.
POLICY FOCUS
— Will White House blistering statement about Manchin’s retreat on BBB impact other initiatives? While some say so, others note centrist Dem. Joe Manchin (D-W.Va.) is above the fray and will treat future issues with the same amount of reasoning he did the failed Build Back Better (BBB) package.
Senate Majority Leader Chuck Schumer (D-N.Y.) is not giving up. In a “Dear Colleague” letter sent this morning, the majority leader promised to bring up the BBB despite Manchin’s objections and vote on it “until we get something done.” In the letter, Schumer swiped at Manchin by saying, “[S]enators should be aware that the Senate will, in fact, consider the Build Back Better Act, very early in the new year so that every Member of this body has the opportunity to make their position known on the Senate floor, not just on television. We are going to vote on a revised version of the House-passed Build Back Better Act — and we will keep voting on it until we get something done.
Schumer pledged to force a showdown over voting rights legislation — which Manchin has opposed — and threatened to try to change Senate rules on the filibuster. Both Manchin and Sen. Kyrsten Sinema (D-Ariz.) are opposed to any such rule changes.
Schumer in his statement noted: “To further discuss these critical issues, we will hold a virtual Special Caucus on the evening of Tuesday, December 21, the longest night of the year.”
— Congress may need to pass another Covid relief bill, depending on how severe the Omicron variant becomes. Some say the best option is to extend expiring American Rescue Plan and CARES Act provisions and try to attach as much as Sen. Manchin can concur.
Pursuing separate smaller bills would require at least 10 Republicans to support them in the Senate under regular voting rules. Rep. Suzan DelBene (D-Wash.) said child tax credits, subsidies for affordable healthcare, and climate programs should be priorities.
CHINA UPDATE
— China's central bank cut its main interest rate for the first time in 20 months, as authorities step up efforts to boost an economy that has been hit by pandemic-related curbs, a real estate slump and an unprecedented crackdown on private enterprise. The People's Bank of China today lowered its one-year loan prime rate (LPR) by 5 basis points to 3.8%. The LPR is the rate at which commercial banks lend to their best customers and it serves as the benchmark rate for other loans. While Monday's rate cut is small, it's the first such move since April 2020, when China slashed the LPR to boost its Covid-hit economy, which had just contracted for the first time in more than 40 years.
Reaction. "The cut reinforces our view that authorities are increasingly open to cutting interest rates amid looming economic headwinds," said Zhaopeng Xing, senior China strategist at ANZ, in a research note on Monday. Some analysts note the PBOC has been opposite (and better) than the rest of the world's central banks.
— Chinese tennis player issues a denial. Peng Shuai, the Chinese tennis player who disappeared from public view after accusing Zhang Gaoli, China’s former vice-president, of sexual assault, gave an interview to a Singaporean newspaper denying that she had made the allegation in the first place. The Women’s Tennis Association, the sport’s international body, said the interview had not alleviated its concerns about her wellbeing.
— Hong Kong voted in the first election since a draconian national-security law and new electoral rules came in. Turnout was just 30%, the lowest in decades. Only pro-China politicians were allowed to run for a seat in the territory’s legislature, and the proportion of directly elected members has fallen from 53% to 22%.
— China's wealthiest real-estate magnates lost a combined $46 billion this year. Leading the way was Evergrande's founder, who saw $17 billion erased from his net worth, according to Bloomberg.
ENERGY & CLIMATE CHANGE
— Still waiting on EPA RFS proposals being published. EPA Dec. 7 announced their proposed levels for the Renewable Fuel Standard (RFS) for 2020, 2021 and 2022 with the announcement indicating the public comment period on the proposed levels would end Feb. 4. EPA has set a public hearing for Jan. 4 (and possibly Jan. 5) to receive public input in the plan, with speakers allotted three minutes to present their views to the agency. But the full proposed rule on the RFS has yet to be published in the Federal Register, perhaps not surprising given the pre-publication version was 159 pages in length with a regulatory impact analysis tallying 293 pages. EPA has also proposed adjusting the compliance dates the program to compensate for the levels not yet being finalized for 2021 and for the proposed changes to the 2020 RFS levels that were finalized in December 2019. There is a Jan. 3 deadline for comments to be submitted on that plan.
CORONAVIRUS UPDATE
— Summary: Global cases of Covid-19 are at 274,767,779 with 5.356.319 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 50,846,841 with 806,438 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 495,101,938 doses administered, 203,926,479 have been fully vaccinated, or 62.13% of the U.S. population.
— President Biden on Tuesday will speak about Covid. From the White House: “Building off his Winter Plan, the President will announce new steps the Administration is taking to help communities in need of assistance, while also issuing a stark warning of what the winter will look like for Americans who choose to remain unvaccinated.”
— Dr. Anthony Fauci, the White House’s chief medical advisor, said he expects the nation’s coronavirus cases to reach record highs this winter, putting “significant stress” on hospital systems in some regions with low vaccination rates, driven by the highly contagious Omicron variant. With 50 million Americans eligible for vaccines still unvaccinated, and Omicron cases doubling every two to three days, “it’s going to be a tough few weeks to months as we get deeper into the winter,” he told CNN’s State of the Union. About 61% of Americans are fully vaccinated. The Omicron variant is 50% of cases in some parts of the country, “which means it’s going to take over,” Fauci said. Omicron has been confirmed in 89 countries and at least 39 states and is expected to become the dominant U.S. strain within weeks.
— Lawmakers test positive for Covid. Two Democratic senators – Cory Booker (N.J.) and Elizabeth Warren (Mass.) – and one House Democrat, Rep. Jason Crow of Colorado, announced Sunday that they have tested positive for Covid.
— Moderna: Covid-19 booster dose works against Omicron variant in lab tests. Moderna said a third dose of its Covid-19 vaccine increased immune responses against the Omicron coronavirus variant compared with two doses in lab tests, signaling the shot could still offer protection despite the variant’s mutations. The Cambridge, Mass., company said the authorized dosage of its booster shot increased levels of immune-system agents known as neutralizing antibodies against Omicron about 37 times more than pre-boost levels. The authorized booster shot is half the dose level used for each of the first two shots of the vaccine.
— Omicron study results. A new study by researchers at Imperial College London found no evidence of a difference in severity between the Omicron variant of Covid-19 and the Delta variant. The risk of reinfection, however, is 5.4 times higher. Previous infection or a two-dose vaccine regimen offer no more than 20% protection against symptomatic cases of Omicron — but a booster from an mRNA jab can push this figure up to 55-80%. Omicron is quickly supplanting other strains: it now dominates in England, accounting for 54% of cases. Public-health agencies logged record infections on Friday — in Britain, New York state and elsewhere.
— A Biden-administration mandate that large firms must ensure their employees are Covid-vaccinated or tested weekly was reinstated. A federal appeals-court panel overturned a previous ruling that it be paused. Some 84 million workers could be subject to the requirement, which is due to come into force in January. The matter may now head to the Supreme Court.
— Low-dose version of the Pfizer-BioNTech Covid-19 vaccine failed to produce an adequate immune response in children aged two to five, the companies said. Two jabs, each with a tenth of the adult dose, produced desirable antibody levels in kids under two, but not in those a bit older. The vaccine-makers will try giving them a third shot.
— Covid-19 is again playing havoc with professional sports. Over the past week, matches have been postponed in the National Basketball Association and the National Hockey League in America and the English Premier League. More than 70 players in America’s National Football League tested positive on Monday and Tuesday. Leagues have announced stricter protocols, with vaccine mandates for fans as well as boosters and regular testing for players all being rolled out or under consideration. This is all despite high inoculation rates: the NBA says 97% of its players are vaccinated; the NFL says around 95%.
CONGRESS
— Former Sen. Johnny Isakson dies at 76. Isakson (R-Ga.) died on Sunday at the age of 76, the Isakson Initiative announced. He had been battling Parkinson's Disease for several years. Isakson had a 15-year congressional career as a centrist conservative. Isakson served as a real estate executive before advancing to the Georgia state House in the 1970s and the state Senate in the 1990s. Isakson would later replace Gingrich as House speaker in 1998 after a poor turnout in the election.
— U.S. lawmakers traded $631 million worth of securities in 2021. Democrats favored tech and Republicans piled into energy, and cryptocurrency purchases surged. Critics have pointed to such activity as a conflict of interest for those with legislative influence.
OTHER ITEMS OF NOTE
— Russia released a list of demands that it wants the West to agree to ease tensions on its border with Ukraine, where Russia has massed tens of thousands of troops. They include a ban on Ukraine joining NATO and a limit to the deployment of NATO troops in the region. Russia’s gov’t has previously said failure to agree to the proposal would lead to a “military response.”
— NASA’s James Webb Space Telescope, the biggest ever built, is being readied for blast-off from French Guiana on Christmas Eve. From the Economist: “The telescope is 14 years late and dramatically over budget, costing nearly $10bn. Deploying it far beyond the Moon will be the trickiest robotic feat ever attempted in space. Ground controllers will unfold five tennis-court-sized sunshields and 18 mirror panels. The latter must then be precisely bent to focus light into a beam that strikes a smaller mirror. This robotic origami could be foiled by any of 344 “single-point failure” maneuvers. A helium ‘cyrocooler’ must also chill some sensors nearly to absolute zero, the temperature at which molecular motion stops. But if all goes well, in six months NASA and its partners will see infrared imagery in unprecedented detail. From its perch at a gravitationally stable spot known as L2, ‘the Webb’ will capture nearby exoplanets and quasars billions of light years away.”
