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Sentiment up as Omicron fears subside

Good morning

UK Health minister Javid made a statement on Omicron yesterday, confirming that the variant was now in community transmission with cases that have no links to international travel. Further pre-travel tests were announced for arrivals to the UK. Numbers are still currently low, there are still less than 350 cases of Omicron known in the UK to date, but it seems certain that this number will rise sharply in the coming days and weeks, and that the Omicron variant is likely to be the UKs dominant variant within weeks.

However global equities have risen so far this week, fuelled by the hope that while Omicron is spreading, early signs are that it is not as severe as initially feared. I have said before that it is a little too early to tell but maybe we’ll get lucky.

GBP found a little support yesterday as BoEs Broadbent talked of possible upside risks to inflation from the labour market. The next round of UK employment data comes out in one weeks time, a couple of days before the Dec BoE policy meeting. Strong employment numbers are likely to increase the chances of a BoE rate rise next week. GBPUSD currently 1.3270 with EURGBP 0.8500 (GBPEUR 1.1765).

China announced a cut in the RRR for banks by 50bps from 15th Dec, freeing up reserves that can be used to support the economy. That’s the idea at least. I wonder if there is any coincidence that this is also the date of the FOMC meeting. Worth watching USDCNY over the next week or so China trade balance came in lower than expected overnight, at $71 billion from $82 billion, higher imports responsible for the lower headline. Still a pretty decent surplus mind you and worth noting exports rose to a new record.

RBA did leave rates on hold and reiterated they will not be raising rates until inflation is sustainably within the 2-3% area. The lack of a really dovish outlook though seems to have given AUD some support with AUDUSD up to almost 0.7100 and AUDNZD to 1.0480. AUD likely to be helped a little by the China trade data, the larger import number may suggest China economy may be picking up.

Better risk sentiment over Omicron perhaps also helping AUD, and oil has seen gains of 5% or so as well as concerns over travel seem to be waning, for now at least.

The West are looking at reprisals for Russia if they do indeed invade Ukraine as looks possible. At the moment most of the sanctions seem to revolve around the Russian banking system, although whether that is enough of a deterrent remains to be seen. I’m not sure how that would leave Europe and its natural gas supplies either. It seems likely that were Russia to invade, Europe and US would have to move forces to its Eastern borders, which wouldn’t be particularly comfortable. Biden and Putin are due to talk this afternoon so worth watching for any headlines.

Running a little late due to internet issues this morning so I’ll leave it there for now. Did complain to Virgin Media who are actually sending a real person out later this week to take a look. I reckon they’ll run some tests, turn things on and off and then just change the router. Mind you I didn’t actually expect them to do anything other than make excuses.

- 10.00 EU GDP

- 10.00 German ZEW

- 13.30 US goods trade balance

- 13.30 CAD international trade

- 15.00 CAD Ivey PMI

- 15.00 Biden/Putin talk

- 23.50 Japan GDP

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