Omicron Variante
Three of Wall Street’s major indexes fell on the Thanksgiving holiday, with energy, financial, and travel stocks hit by a sharp sell-off following the discovery of a new strain of coronavirus.
This variant was first found in South Africa. Supposedly, scientists say there is a range of mutations that could make it more resistant to vaccines and more contagious than the delta variant.
The crux of the matter is that such variables can lead to a monetary policy stalemate, i.e., a monetary stimulus prognosis for GDP growth, the recovery in the leisure and service sectors.
U.S. Economic Data
A positive labor market report for November could underscore the Fed’s urgency to scale back the stimulus measures that have been in place since the pandemic began. Yet at the next meeting in mid-December, plans could be modified, because of the new COVID variant.
There is further concern about rising inflation.
On Friday, the nonfarm payrolls report for November will be released. The Institute for Supply Management’s manufacturing and services index report will also be available, as will information on pending home sales, consumer confidence, and the Fed’s Beige Book.
Powell and Yellen’s Testimony
On Wednesday, a hearing will be held before the Council’s Finance Committee.
Investors are looking for information on the outlook for economic recovery amid emerging uncertainties.
Jerome Powell, the reappointed Fed chairman, will testify about the CARES Act, the central bank’s pandemic-era stimulus program, in front of the Senate Banking Committee in Washington.
Oil Demand Development
Oil prices fell $10 per barrel on Friday. It was the steepest one-day drop since April 2020, as news of the new Omicron variant prompted many countries to hastily curtail travel. Fueling concerns that oversupply could increase in the first quarter.
OPEC+ will meet Thursday, following last week’s decision by the U.S. and other countries to release oil from strategic reserves in an effort to depress fuel prices.
Since August, OPEC+ has been increasing its monthly output by 400,000 barrels per day.
Eurozone Inflation
Over the next few days, Germany, Spain, and France will present their CPI figures for November. Earlier, consumer price inflation reached a 13-year high of 4.1% in October.
With inflation on the rise, the ECB is increasingly being asked to tighten monetary policy. With Europe struggling with the virus, however, the ECB is expected to raise its 2022 inflation forecast at its upcoming December meeting.
Analysts are waiting for the ECB to announce that its pandemic-era asset purchase program will end in March, while it scales up its long-standing bond-buying program to offset the reduction in stimulus.