ECB reassures market

Shady Elborno - Head of Macro Strategy
Published Date: 01 December 2021

 

  • European Central Bank (ECB) policymakers sought to reassure investors over the new Omicron variant of the coronavirus on Monday, arguing that the euro zone's economy had learned to cope with successive waves of the pandemic. ECB President Christine Lagarde, that the central bank knows what measures it needs to take, adding they are better equipped to respond to a risk of a fifth wave or the Omicron variant. Her comments were echoed by ECB policymaker Francois Villeroy de Galhau who said that successive waves have proven so far to be less and less damaging, and this one shouldn't presumably change the economic outlook too much.  ECB vice-president Luis de Guindos acknowledged the high degree of uncertainty and called for keeping all policy options open, however he argued much higher vaccination rates should help Europe better deal with these risks.
  • Contracts to buy US previously owned homes jumped in October, rising 7.5% m/m last month to 125.2, reversing a decline in the prior month  as buyers snapped up properties before mortgage rates edged upward. The data from the National Association of Realtors (NAR) showed the Pending Home Sales Index increased in all four regions. However, measured annually home sales declined 1.4% y/y in October. US Demand for housing shot up early in the pandemic as Americans moved from city centers to suburbs and less densely populated areas searching for larger housing that better accommodates online schooling and working from home. Total existing home sales for 2021 are now set to top 6mn, which would be the most in 15 years, NAR reported. However, demand is cooling somewhat as workers return to offices, and schools reopened for in-person learning.
  • German consumer price inflation rose rose 6.0% y/y in November following an increase of 4.6% y/y in October to hit another record high, preliminary data showed on Monday. The German Federal Statistics Office said the reading was the highest rate recorded since January 1997, when the EU-harmonised series began. The recent surge in inflation is caused by a mix of several factors, including higher energy prices, base effects, a pandemic-related temporary VAT rate in the previous year and material shortages in the course of the recovery. ECB board member Isabel Schnabel said the central bank believes inflation peaked in November, alluding that it would be premature to raise rates as inflation look likely to slow gradually next year.     

Today’s Economic Data and Events

  • 12:55 EU German Unemployment Change (Nov) Forecast -25K
  • 14:00 EU CPI (YoY) (Nov) Forecast 4.40%             
  • 17:30 CA GDP (MoM) (Sep) Forecast 0.10%         
  • 19:00 US CB Consumer Confidence (Nov) Forecast 110.9
  • Tentative US Fed Chair Powell Testifies               

Fixed Income

  • U.S. Treasury yields bounced higher on Monday as the flight-to-safety bid that had been triggered by the detection of a new coronavirus variant last week wanes, driving the market's biggest rally since the onset of the pandemic. The benchmark 10-year yield, which dropped as low as 1.473% on Friday, was last up 7.4 basis points at 1.5586%. After tumbling to 1.161% last week, the five-year yield  was last 4.1 bps higher at 1.2225%. The two-year yield was last up 2.1 basis points at 0.5413%, giving back a bit of Friday's almost 14-basis-point drop -- the steepest daily fall since March 2020.

FX

  • The dollar firmed on Monday, while the yen and Swiss franc weakened, reversing some of Friday's moves, as fears about the new coronavirus Omicron variant receded. The U.S. dollar index, which had its biggest one-day drop since May on Friday, rose 0.1%. Euro-dollar one-month volatility hit its highest since December 2020 on Monday before dropping back down. Japan's yen slid against the dollar, which rose 0.3% against yen. Swiss Franc was was down 0.4% on the day, after recording it’s biggest one-day jump versus the dollar since June 2016 on Friday.   

Equities

  • Bargain buying in technology stocks drove Wall Street higher on Monday following Omicron induced slump, while the Dow Jones lagged its peers, dragged by major banks as investors awaited more information on the new coronavirus variant. The S&P technology subindex jumped 2.1%, indicating that investors were favored pandemic-resistant technology stocks amid growing fears of the new variant