Daily Market Outlook, December 9, 2021

Overnight Headlines

Asian equity markets were mixed, with bourses in China outperforming, supported by policy stimulus measures. China’s factory inflation slowed from last month’s 26-year high to 12.9%, although it was a smaller decline than forecast, while CPI inflation remained low. Japan’s Nikkei, however, traded lower. Markets continue to assess the impact of the omicron variant on health and economic outcomes.

There are again limited economic data and events in the calendar today, as the focus remains on the omicron variant. Although there is some cautious optimism that the health impact of the new variant may not be more severe than delta, the UK government has nevertheless announced further restrictions in England in a bid to stem its transmission. PM Johnson imposed ‘Plan B’ measures, including face masks in more public places from Friday and, from next week, working from home (Monday) and vaccine passports (Wednesday). The measures are expected to be voted on by Parliament next week. Other parts of the UK already have stricter measures.

In the US, this afternoon’s weekly initial jobless claims data are expected to show them remaining around pre-pandemic levels, an indication of a strong labour market. Tomorrow’s US CPI inflation report is also expected to show a jump up close to 7%. The Fed is expected to announce a quicker pace of tapering next week, paving the way for the option to raise interest rates in the first half of next year.

Official UK GDP figures for October will be released at 7am tomorrow, but they are likely to be seen as old news. Evidence from the PMI survey points to a pickup in momentum at the start of Q4, with the composite index (covering manufacturing and services) rising to 57.8 in October from 54.9 in September. Look for a solid rise in October GDP of 0.7%, supported by broad-based sector increases. Indications suggest that the pace of expansion remained firm in November, but the new variant could moderate growth in December. Overall, the BoE’s Q4 GDP forecast of about 1% appears to be appropriate.

German CPI inflation figures, also due early tomorrow, are expected to confirm the preliminary reading of a sharp jump up to 6.0% in November (on the EU-harmonised measure). High inflation in the Eurozone is also leading policymakers at the European Central Bank to consider the degree to which monetary support (asset purchases in the first instance) should be scaled back.

Markets are expected to remain volatile amid omicron uncertainties and as central banks prepare to rein back support. The BoE, however, is increasingly expected to defer a near-term rate rise until the New Year, as GBP/USD trends lower, holding just above 1.32. The US 10-year Treasury yield edged down to 1.50%, while oil prices were mixed. Brent crude price edged above $76 a barrel.

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1300 (450M), 1.1380 (567M), 1.1400 (359M)

GBP/USD: 1.3200 (370M), 1.3300 (261M)

EUR/GBP: 0.8550-60 (744M), 0.8600 (250M)

USD/JPY: 112.90-113.00 (1.1BLN), 113.10-15 (1BLN), 113.25 (1BLN)

113.50 (868M), 113.70 (1BLN), 113.90-114.00 (1.1BLN), 114.10 (2.2BLN)

EURUSD Bias: Bearish below 1.15 Bullish above

GBPUSD Bias: Bearish below 1.36 Bullish above.

USDJPY Bias: Bullish above 112.50 Bearish below

AUDUSD Bias: Bearish below 0.7250 Bullish above