MARKET REVIEW

Overnight Asia

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Asian stocks and US futures rose on Tuesday after Wall Street equities rebounded and China pledged measures to support economic growth. Treasuries steadied after tumbling.?MSCI Inc.’s gauge of Asia Pacific shares was on track for its biggest gain in more than three months. Hong Kong stocks advanced with Alibaba Group Holding Ltd. leading a rebound in Chinese tech firms after the company announced a management shake-up. The S&P 500 wiped out last week’s losses as concerns about the severity of the Omicron virus variant receded. European futures gained.

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Treasury yields have erased Friday’s steep declines, edging higher on Tuesday after a large jump on Monday. The Australian Dollar gained with bond yields after the Central Bank gave an upbeat assessment of the economy while stressing uncertainty from Omicron. Oil extended gains.

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China’s policy makers on Monday signalled an easing of real estate curbs and pledged to stabilise the economy. The People’s Bank of China said it will reduce most banks’ reserve requirement ratio, while Premier Li Keqiang said there’s room for a variety of monetary policy tools.?Easing of monetary conditions to shore growth in the world’s second-largest economy should offer some succor for markets whipped by bouts of volatility. The faster pace of Fed tapering of its bond-buying, which will pave the way for raising rates next year to combat elevated inflation, has tested investors’ appetite for risk. Equity markets could be in for further turbulence on new restrictions to stem the spread of Omicron.

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There is a lot of uncertainty in the markets with the Fed, inflation and Omicron spurring a risk-off environment, Sylvia Jablonski, Defiance ETFs chief investment officer and co-founder, said on Bloomberg Television. However, “the economic data looks very good. We don’t need the same sort of monetary stimulus that we had before so maybe the tapering isn’t so bad — we don’t expect it to be too out of control or too quick so there is some good news for buying on the dip.”?On the data front, China’s exports grew faster-than-expected in November to hit a record on external demand and an easing power crunch.

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The nation’s property debt crisis that’s been a drag on the economy continues to be closely monitored as China Evergrande Group’s grace period for some coupons ended with some bondholders yet to receive payment. Meanwhile, a group of Kaisa Group Holdings Ltd. bondholders sent the company a formal forbearance proposal, designed to buy the developer some time and avoid a default.?Geopolitical tensions are also resurfacing. The US and European allies are weighing banking sanctions if Russia invades Ukraine. US government officials will boycott the Beijing Winter Olympics in February due to concerns about human rights abuses.

Here are some key events to watch this week:

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·????Euro area GDP, Tuesday

·????Reserve Bank of India rate decision, Wednesday

·????Olaf Scholz set to replace Angela Merkel as chancellor, Wednesday

·????European Central Bank President Christine Lagarde speaks at a conference, Wednesday

·????Federal Reserve Bank of Minneapolis President Neel Kashkari speaks, Thursday

·????Reserve Bank of Australia Governor Philip Lowe speaks, Thursday

·????China CPI, PPI, money supply, new Yuan loans and aggregate financing, Thursday

·????US CPI, Friday

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Stocks

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·????S&P 500 futures rose 0.70% as of 7.03 am in London. The S&P 500 rose 1.20%

·????Nasdaq 100 futures added 0.80%. The Nasdaq 100 rose 0.90%

·????Topix Index rose 2.20%

·????Australia’s S&P/ASX 200 Index gained 1.00%

·????Kospi Index rose 0.60%

·????Hang Seng Index gained 2.50%

·????Shanghai Composite Index increased 0.20%

·????Euro Stoxx 50 futures rose 0.70%

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Currencies

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·????The Japanese Yen was at 113.74 per Dollar, down 0.20%

·????The offshore Yuan was at 6.3695 per Dollar

·????The Bloomberg Dollar Spot Index dipped

·????The Euro was at $1.1293

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Bonds

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·????The yield on 10-year Treasuries rose about one basis point to 1.45%

·????Australia’s 10-year yield rose seven basis points to 1.64%

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Commodities

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·????West Texas Intermediate Crude rose 1.70% to $70.69 a barrel

·????Gold was at $1,783.08 an ounce, up 0.30%

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US Market Wrap

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The S&P 500 Index rose to erase nearly all of last week’s decline, as confidence rebounded on reports indicating that the Omicron variant of Covid-19 isn’t overwhelming hospitals.?The benchmark gauge closed up 1.2%. All 11 of the major industry groups rose, with the industrials, consumer staples and utilities sectors leading gains. The tech-heavy Nasdaq 100 Index rose 0.9%, while the blue-chip Dow Jones Industrial Average increased 1.9%.

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“The short-term read on Omicron’s lethality is okay (so far), but it has not paid to be too optimistic on early Covid results,” Wells Fargo equity strategist Christopher Harvey said.

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However, “longer term we are encouraged by the tendency for viruses to become more contagious but less deadly as they evolve,” he added.

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The uncertainty arising out of the virus’s latest outbreak is expected to continue roiling the markets over the next few weeks, especially after mixed economic data last week rattled investors and prompted an exit from high-risk assets into safer havens. Bitcoin plunged over the weekend, a move that some said reflected the higher macroeconomic uncertainty.

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Growth stocks significantly lagged behind value names on Monday, with travel and airline shares leading the value rally.?“As 2022 outlook season gets into full swing, US equity investors are having to price in a less accommodative Fed,” RBC Capital Markets analyst Lori Calvasina said, adding that comments from Fed Chair Jerome Powell about an accelerated taper caught investors by surprise last week.

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The rebound underscored the high volatility of the stock market, which has left investors keeping an eye on economic indicators set to be released later this week, including the monthly report on US consumer prices on Friday.

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“Reports of the Omicron symptoms being less severe are boosting risk appetite but it’s too soon to get carried away,” Oanda’s senior market analyst Craig Erlam said. “Markets have been very headline-driven and this is just the latest rally on the back of some positive reports.”

Sectors to Watch:

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·????Stocks tied to former US President Donald Trump rose after his media company and the firm taking it public agreed to a $1 billion investment

·????Most electric-vehicle startups were volatile on Monday after Lucid Group said it received a subpoena from the Securities and Exchange Commission

·????Some cryptocurrency-exposed stocks fell amid volatile trading in Bitcoin, another indication of the risk aversion sweeping across financial markets

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Politics/Economy:

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·????South Africa’s surge in Covid-19 cases following the emergence of the Omicron variant hasn’t overwhelmed hospitals so far, prompting some cautious optimism that the new strain may cause mostly mild illness

·????China cut the amount of cash most banks must hold in reserve, acting to counter the country’s economic slowdown in a move that puts the Central Bank on a different policy path than many of its peers

·????Oil rose after Saudi Arabia boosted the prices of its Crude, signalling confidence in the demand outlook, despite the spread of the Omicron variant of the Coronavirus

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Markets

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·????S&P 500 Index up 1.20%

·????Dow Jones Industrial Average up 1.90%

·????NASDAQ Composite Index up 0.90%

·????Russell 2000 Index up 2.00%

·????11 of 11 main S&P 500 sectors closed higher

·????Industrials up 1.60%

·????Consumer staples up 1.60%

·????US Generic Govt 10-Year up 7.00%

·????Bloomberg Dollar Spot Index (Rebased Version) up 0.10%

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