U.S. Futures and Asian Stocks Drop on Manchin Shock; Virus / Dow drops more than 500 points

20/12/2021 U.S. equity futures, Asian stocks and crude are lower this morning amid concerns about more omicron-induced curbs and after a setback for President Joe Biden’s economic agenda prompted Goldman Sachs Group Inc. to cut forecasts for U.S. growth. MSCI Inc.’s gauge of Asia-Pacific equities was on track to fall for its sixth session in seven. Treasury yields dropped, gold edged higher and the dollar held a jump from Friday amid a mood of caution. Traders were assessing the latest comments from U.S. Senator Joe Manchin, who left Democrats with few options for reviving Biden’s agenda after rejecting the roughly $2 trillion tax-and-spending package. Goldman economists reduced their U.S. economic growth forecasts in the wake of the senator’s move. Fresh lockdowns in parts of Europe to stem the rapid spread of omicron are also unsettling investors and weighing on risk sentiment. In China, banks lowered the one-year loan prime rate, a key benchmark of borrowing costs, for the first time in 20 months. Calls for easing had grown amid a property sector crackdown that’s weighing on economic expansion.
Oil extended declines as the rapid spread of the omicron variant of the virus increased concerns about the outlook for energy demand. Futures in London fell below $72 a barrel after slipping 2.2% last week. Spot gold rose 0.2% to $1,801 an ounce, with silver that steadied, while platinum and palladium dropped. Iron ore extended gains to a two-month high climbing 5.7% to $126.70 a ton, following a 11% jump last week. Asian copper miners drop after top producer Chile elects leftist Gabriel Boric as president. Boric has vowed for higher taxes on mining and focus on greener industries.

The JSE Top 40 futures are indicating a lower start in-line with global markets pointing down 730 points or 1.15%, with Naspers and Prosus that could weigh further on the market as Tencent trades 1.6% lower in HK. The Rand trades weaker at around the 15.95 level vs the USD.
Here are some events to watch this week:

  • Reserve Bank of Australia releases minutes of its December interest rate meeting. Tuesday
  • EIA crude oil inventory report Wednesday
  • Bank of Japan Governor Haruhiko Kuroda speaks Thursday
  • U.S. consumer income , new home sales, U.S. durable goods, University of Michigan consumer sentiment, initial jobless claims. Thursday
  • Friday: U.S. markets are closed. European markets close earlier
    Locally the FTSE/JSE Africa All-Share Index closed down 0.4% to 71,203, with Naspers and Prosus that weighed the most shedding 4.2% and 3.5% respectively, as they followed their global tech-peers lower. Banks and retailers steadied, with the sectors gaining 1.3% and 0.8% respectively on a stronger currency. The Rand was up 0.4% to 15.88 per US$, with the Yield on 10-year govt rand bonds that fell 15.50 bps to 9.75%.

South African Minister of Minerals and Energy Gwede Mantashe tested positive for Covid-19 after experiencing mild symptoms, the second time he’s contracted the virus.

  • South Africa Set to Extend Covid-19 Grant For a Year: City Press
  • South African Court to Hear Zuma Parole Ruling Appeal on Tuesday
  • Canada Lifts Travel Ban on African Countries, Reimposes PCR Test
  • Pfizer to Make Covid Shots in S. Africa From Third Quarter
  • Naspers-Backed Home Services Startup Buys Egypt’s Fikhedma
  • S. Africa Donates 2.03m Doses of J&J Vaccines to African Nations
  • South African Covid Hospitalizations Rise to 7,951, 6.7% in ICU
  • Barloworld to De-List From Namibian Stock Exchange on Feb. 28
  • Fin24: First Tekkie Town, now Trevo – Steinhoff reaches another big settlement agreement
    European markets pulled back on Friday as concerns persisted about the spread of the omicron Covid-19 variant and the inflation outlook. The pan-European Stoxx 600 closed down by 0.5%, with autos slipping 2.5% to lead losses as most sectors and major bourses slid into the red. European markets have all but given back Thursday’s gains, when investors reacted positively to central bank policy decisions. The Federal Reserve on Wednesday announced that it would be aggressive on tapering bond purchases and sees several rate hikes in 2022. The Bank of England followed suit by hiking interest rates for the first time since the start of the pandemic, citing a strong labor market and the need to return inflation towards its 2% target. November’s reading came in at a 10-year high of 5.1% annually. The European Central Bank struck a more dovish tone, further cutting its pandemic-era bond buying program but vowing to stay accommodative through 2022 and beyond. Meanwhile, the omicron variant is spreading at an alarming rate, with countries across Europe implementing containment measures in a bid to avoid a tsunami of cases. The U.K. reported over 90,000 cases in a single day on Friday, but daily deaths remain relatively stable for now. On the data front, a monthly survey from Germany’s Ifo Institute showed sentiment in Europe’s largest economy sliding in December, with the business climate index falling to 94.7 from 96.6 in November, below a consensus forecast of 95.3. In terms of individual share price movement, Italian biotech firm DiaSorin saw its shares slide more than 10% to the bottom of the Stoxx 600, as investors balked at its 2022-2025 business plan. At the top of the index, Just Eat Takeaway.com shares climbed over 4% after Bloomberg reported activist investor Cat Rock has increased its stake in the Anglo-Dutch food delivery firm. Meanwhile, French petroleum company Rubis climbed 4.7% after acquiring solar energy group Photosol in a bid to speed up its transition to renewables.

U.S. stocks came under pressure again in Friday’s volatile session amid worries about tighter monetary policy and the ongoing pandemic, leading to a losing week for the major averages. The Dow Jones Industrial Average dropped 532 points, or 1.5%, to 35,365. The S&P 500 fell 1% for a second down day to 4,620. The tech-heavy Nasdaq Composite ended the session less than 0.1% lower at 15,169 after briefly trading in the green. At its session low, the Nasdaq dropped about 1.5%. The major averages posted a negative week with the Nasdaq being the biggest loser. The tech-heavy benchmark declined nearly 3%, while the Dow and the S&P 500 slipped 1.7% and 1.9%, respectively. Friday coincided with the expiration of stock options, index options, stock futures and index futures — a quarterly event known as “quadruple witching” that typically comes with heightened volatility. The S&P financial sector was the biggest laggard on Friday with a 2.3% loss after bank stocks outperformed in the previous session. Goldman Sachs lost nearly 4%, while Bank of America and JPMorgan both lost over 2%. Many mega cap tech shares registered steep losses last week. Microsoft dipped 0.3% Friday, bringing its weekly decline to nearly 5.5%. Alphabet and Apple fell more than 4% this week. Shares of one-time EV darling Rivian tumbled more than 10% Friday after the truck maker said it will fall short of its 2021 production target. Investors appeared to be rotating from high-growth tech names to consumer staples, as they continued to digest the latest move by the Federal Reserve along with rising inflation and the spread of the omicron Covid variant. FedEx shares jumped almost 5% after quarterly earnings and revenue results topped expectations and it announced a $5 billion buyback. The shipper also reinstated its original 2022 EPS forecast. Covid-19 vaccine makers Moderna and Pfizer notched weekly returns of 14.7% and 12.7%, respectively, making them standouts in the S&P 500.

Shares in Asia-Pacific were lower in Monday trade, with China slashing its benchmark lending rate for the first time in more than one-and-a-half years. Mainland Chinese stocks were lower, with the Shanghai composite down 0.75% and the Shenzhen component falling 1.365%. Hong Kong’s Hang Seng index slipped 1.44%. China on Monday announced a cut in its one-year loan prime rate from 3.85% to 3.8% — the first such move since April 2020. Majority of traders and economists in a Reuters poll had expected cuts to the loan prime rate. Elsewhere, the Nikkei 225 in Japan led losses among the region’s major markets as it dropped 2.16% while the Topix index shed 2.06%. South Korea’s Kospi dipped 1.71%. Australian stocks also declined, with the S&P/ASX 200 down 0.25%. MSCI’s broadest index of Asia-Pacific shares outside Japan traded 1.51% lower. The Japanese yen traded at 113.51 per dollar, stronger than levels above 114 seen against the greenback last week. The Australian dollar was at $0.7111, off levels above $0.72 seen last week.

Gold held onto its first weekly advance since mid-November as investors weighed concerns over the spread of the omicron virus variant against tightening monetary policy. Spot gold rose 0.2% to $1,801.90 an ounce, after climbing 0.9% last week. The Bloomberg Dollar Spot Index was flat after advancing 0.6% Friday. Silver steadied, while platinum and palladium dropped.
Oil extended declines as the rapid spread of the omicron variant of the virus increased concerns about the outlook for energy demand. Futures in London fell below $72 a barrel after slipping 2.2% last week. Covid-19 infections are rising from the U.S. to Europe as authorities struggle to tame the spread of omicron.

Asian copper miners drop after top producer Chile elects leftist Gabriel Boric as president. Boric has vowed for higher taxes on mining and focus on greener industries. Zinc fell on signs supply is rising at the same time the omicron variant threatens to derail the global economic recovery and hurt broader base metals demand. China’s refined zinc output rose to 572,000 tons last month, the highest level this year, as a power shortage that had hurt production eased. Zinc fell 0.4% to $3,373 a ton, declining a second day. Prices jumped 4.6% on Thursday as surging European power costs led to some production curbs. Aluminum and copper steadied.
Iron ore extended gains to a two-month high as Chinese banks stepped up support for the economy and steel mills boost production into the end of the year. Futures in Singapore added to a fifth weekly advance, the longest stretch since May, on a more buoyant outlook for demand. Iron ore has climbed almost 50% from a low in November on stimulus measures and as crude steel output climbed almost 12% in the first third of December from a month earlier. Iron ore in Singapore climbed 5.7% to $126.70 a ton local time, following a 11% jump last week. Dalian prices rose 1.7%. Steel rebar and hot-rolled coil gained more than 1% in Shanghai.