Daily market review

United States

Pandemic fears and comments from Federal Reserve Chair Jerome Powell hurt risk appetite on Tuesday, with equity losses nearly across the board and long-end US Treasury yields off sharply. The Dow Jones industrial average and the S&P 500 both dropped 1.9 percent, and the NASDAQ fell 1.6 percent.

Risk aversion rose overnight after the Financial Times reported Moderna CEO Stephane Bancel said he expected a "material drop" in the effectiveness of existing vaccines to counter the Omicron variant, and said it would take several months before a vaccine targeting Omicron could be produced and distributed widely.

Markets also reacted poorly to Federal Reserve Chair Jerome Powell's comments that the Fed still intends to consider faster tapering of asset purchases given the economy's strength, that the risk of persistently higher inflation has increased, and it's time to stop talking about "transitory" inflation.

Among sectors, communications services lagged, including big internet stocks. Consumer staples fell; machinery stocks hurt industrials. Materials were hurt by losses in chemicals and metals. Energy suffered from falling oil prices. Financials lagged as long-end US Treasury yields declined though short end yields rose on the Powell comments. Outperforming but still weaker were consumer discretionary stocks. Apple, up 3.2 percent, bolstered technology shares. Real estate fared best.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil dropped US$2.39 to US$70.57 while spot gold fell US$11.05 to US$1,772.73. The US dollar fell vs. major currencies. Yields on the US Treasury 30-year bond fell 6 basis points to 1.80 percent, and the 10-year note fell 6 basis points to 1.44 percent.


The risk-off mood returned as investors fretted over Omicron. The Europe-wide STOXX 600 lost 0.9 percent, the French CAC fell 0.8 percent, the German DAX lost 1.2 percent, and the UK FTSE 100 declined 0.7 percent.

An outsized gain in Eurozone inflation added to the negative tone as HICP took off in November. A flash 4.9 percent annual rate was up 8 tenths from October, and an unprecedented 5 tenths above the market consensus.

Among sectors, travel & leisure lagged the most as some countries reintroduced travel restrictions and testing requirements for visitors. SAS, the airline, dropped 8.5 percent, and EasyJet fell 1.7 percent on the virus worries, plus disappointing earnings and gloomy guidance. Retail stocks were hurt by fear of renewed restrictions on movement, and energy stocks suffered as oil prices dropped again. Health care outperformed the market, along with basic resources, and banks, but all were lower.

Among stocks in focus, Inditex, the giant clothing retailer, lost 6.1 percent after announcing the daughter of its founder would become the firm's new chair. Knorr-Bremse, the manufacturer, fell 2.1 percent after warning that chip shortages were slowing its business. On the positive side, Volvo rose 12 percent on better than expected results and guidance. Future plc, the magazine publisher, rose 12 percent after an earnings beat.

Asia Pacific

Equities retreated after Moderna's CEO reportedly said existing vaccines were unlikely to be effective against the new Omicron Covid-19 variant, and that it would take time to formulate and distribute new vaccines.

Japanese markets retreated from opening gains after the Moderna comments, with pharma, metals, banks, and autos among the worst performers. Japanese stocks were also hurt by a reduction in Japan's weighting in the MSCI global stock index. The Nikkei 225 fell 1.6 percent and the Topix lost 1.0 percent.

Mainland Chinese markets were mixed with growth stocks off the most and value weak too. China's CSI 300 index eased 0.4 percent and the Shanghai composite index was flat. Strength in reopening plays limited the declines, along with better-than-expected, though still soft, Chinese purchasers data. The CFLP manufacturing PMI rose to 50.1 in November from 49.2 in October while the non-manufacturing index eased nearly a point to 52.4.

Hong Kong equities fell across the board, with the Hang Seng index off 1.6 percent. Weakest sectors were property, tech, and oil & gas. South Korea's KOSPI dropped 2.4 percent on Omicron worries and weaker than expected industrial production data. Taiwan's Taiex rose 0.6 percent.

Australia's All Ordinaries index ended up by 0.3 percent after Australian markets gave up most of the day's gains on the Moderna story. Most sectors rose, led by telecom, tech, and real estate.

Looking ahead*

In Asia/Pacific, the following reports are due: South Korean external trade, South Korean PMI manufacturing, Taiwanese PMI manufacturing, Japanese PMI manufacturing, Australian GDP, Indian PMI manufacturing, and Chinese PMI Caixan manufacturing. In Europe, German retail sales, Swiss CPI, Swiss SVME PMI, French PMI manufacturing, German PMI manufacturing, Eurozone PMI manufacturing, and UK PMI manufacturing reports are due. In North America, US ADP, US PMI manufacturing, US ISM manufacturing, US construction spending, and US beige book reports are due.

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