Daily market review

United States

Fear of the Omicron variant choked global risk appetite Monday, along with expectations for slower growth with the apparent demise of US infrastructure investment plans. Both the Dow Jones industrial average and NASDAQ fell 1.2 percent while the S&P 500 lost 1.1 percent. Dip-buying was evident in the afternoon as the major averages recovered from midday lows.

Rising Covid case counts and expectations for more disruptions in economic activity hit value/cyclicals hardest, especially reopening plays, plus small cap stocks, which are most sensitive to the economic cycle. News that US Senator Joe Manchin would reject President Biden's Build Back Better plan, in an evenly divided US Senate, prompted a further downgrade to growth forecasts. Investors were already expecting less fiscal stimulus in 2022, alongside less monetary policy support.

Equity losses were across the board, with cyclicals -- materials, energy, financials, and industrials -- off the most. Consumer discretionary stocks were hit too, with homebuilders, autos, and retail under pressure, along with travel & leisure. Holding up best but weaker were technology and health care, along with consumer staples, including grocery stores, and communications services, plus household & personal care stocks, in a return of the stay-at-home trade.

Among companies bolstered by the pandemic trade, Netflix rose 1.2 percent, Procter & Gamble gained 0.2 percent and Pfizer rose 2.6 percent, while Caterpillar fell 3.0 percent and Goldman Sachs lost 2.7 percent.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$1.82 to US$71.84 while spot gold declined US$8.09 to US$1,789.68. The US dollar rose vs. most major currencies but fell vs. the euro. Yields on the US Treasury 30-year bond rose 4 basis points at 1.86 percent, and the 10-year note rose 2 basis points to 1.43 percent.


Gloom over the Omicron variant and prospects for more restrictions to counter the pandemic weighed on equities but markets recovered from the day's lows. Illiquidity at year end appeared to exaggerate the decline. The Europe-wide STOXX 600 lost 1.4 percent, the German DAX dropped 1.9 percent, the French CAC declined 0.8 percent, and the UK FTSE 100 lost 1.0 percent.

Losses were across the board but worst performers were basic resources, energy, autos, and insurance. Crude oil prices sank on prospects for slowing demand, with Brent crude off about 4 percent during the European hours. Travel stocks fell but managed to recover from the day's worst levels on positive vaccine news, including a report that Moderna's booster offered protection against the Omicron variant.

Holding up best but still lower were utilities, plus household & personal care, food & beverages, and technology, in a return of the stay-at-home trade. Among companies in focus, Novo Nordisk, the pharma, fell 12 percent, BE Semiconductor lost 4.2 percent, and Airbus fell 2 percent after all three warned of supply chain trouble.

Asia Pacific

Equities fell in a risk-off move on more worrisome pandemic news, including restrictions in Europe, and reaction to the setback for President Biden's Build Back Better fiscal spending plan.

Concern about a global slowdown and more disruptions from pandemic effects hit Japanese equities with the Nikkei 225 off 2.1 percent and the Topix down 2.2 percent. Big exporters including automakers and big tech companies led the selloff while the yen rose on the flight to safety. Markets reacted badly to the reports that Japan plans to extend anti-Covid border controls that were scheduled to expire at year end.

China's CSI 300 index fell 1.5 percent and the Shanghai composite index lost 1.1 percent with negative fallout from more worries over China's property sector and fallout for solar stocks from the evident collapse of the US Build Back Better package, which included big spending for alternative energy. Banks outperformed after China cut the loan prime rate by 5 basis points, and as investors anticipate more monetary policy easing. Hong Kong's Hang Seng fell 1.9 percent.

South Korea's KOSPI lost 1.8 percent with rising Covid case counts hitting risk appetite, along with the hawkish shift from the Federal Reserve and some other central banks. Taiwan's Taiex lost 0.8 percent on spillover from mainland Chinese market losses.

Australia's All Ordinaries index eased 0.3 percent as most sectors declined in the regional flight from risk on Covid concerns. Energy, banks, and miners were among the worst performers, offset in part by strength in health care, consumer staples, and consumer discretionary names.

Looking ahead*

In Asia/Pacific, Reserve Bank of Australia meeting minutes and the Honk Kong CPI report are scheduled for release. In Europe, the following are due: German Gfk consumer climate, UK public sector finances, Swiss merchandise trade, Italian PPI, Eurozone EC consumer confidence, and UK distributive trades reports. In North America, Canadian retail sales and US current account reports are on tap.

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