19 January 2022
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Surveys indicate Omicron economic impact will be shortlived

By Daniel Richards

  • The Empire State manufacturing index fell to -0.7 in January from 31.9 in December, a much steeper decline than the market had expected.  The survey covers manufacturing in New York state, and reflects the impact of the sharp rise in coronavirus infections in recent weeks which had a negative impact on demand. New orders fell sharply, while shipments slowed. Supply chain delays eased however and price pressures moderated. Firms expected the disruptions to be short-lived however.
  • UK employment data released on Monday was broadly better than expected, with the unemployment rate falling to 4.1% in the three months to November and an 184k new jobs added to payrolls in December.  With strong growth in employment in October and November as well, the total number of workers in the UK is now well above the pre-pandemic level. The end of the furlough scheme in September did not lead to rising unemployment as had been feared, and the number of job vacancies reached a record high of 1.2mn in the three months to December. Despite the tight labour market, wage growth slowed to 3.8% in the three months to November, with higher inflation depressing real wage growth.
  • Germany’s ZEW expectations index rose sharply to 51.7 in January from 29.9 in December as investors expect the recent surge in Omicron cases to be shortlived, and are upbeat on Germany’s consumer and export-oriented sectors. However, the current conditions index fell by more than expected to -10.2.      
  • French president Macron and Italian PM Draghi have proposed changes to the EU’s fiscal framework that could – if implemented – loosen fiscal policy across the bloc. The proposals involve transferring government liabilities incurred during the pandemic to a European debt management office, which would benefit from lower borrowing costs than some of the highly indebted states in the EU.  The main target for member states would be the debt/ GDP ratio and the speed of debt reduction (where debt was incurred during a crisis) would be slower. While Germany is unlikely to agree to the proposals, negotiations could result in some changes to the current fiscal framework that would allow for a more gradual tightening in EU fiscal policy post-pandemic.    

Today’s Economic Data and Events

11:00 UK CPI (Dec) forecast 5.2% y/y prev 5.1% y/y

11:00 GE CPI (Dec) forecast 5.3% y/y prev 5.3% y/y

17:30 US Housing starts (Dec) forecast 1650k prev 1679k


Fixed Income

  • US Treasury markets remain in a down cycle, extending their losses overnight despite some oscillation mid-day. Yields on the 2yr UST added 8bps overnight to close at more than 1% while the 10yr yield gained 9bps to 1.8753%. Real yields have also shown a relentless move higher as 10yr UST real yields closed at -0.618% overnight compared with less than 1% at the end of 2021.
  • Among European markets gilt yields pushed higher as the latest UK employment data did little to shift views that the Bank of England will raise rates at its next meeting. The 10yr gilt yield rose 3bps to 1.216%.
  • Turkish bonds were the standout among emerging markets again with yields falling sharply on comments from political leaders that rate cuts could be more gradual. The 10yr Turkish government bond yield fell 70bps to 21.89%. Among other EMs, South African yields ticked higher, up by 4bps to 9.89% while in Indian yields were slightly lower, down 1bps to 6.626%.


  • Another day of yields popping higher helped to propel the dollar further upward. The DXY index gained 0.5% to 95.732 with EURUSD providing much of the gains. The single currency fell 0.7% to 1.1325, erasing much of the gains seen last week. GBPUSD was another notable loser against the dollar with sterling closing down 0.37% at 1.3596. USDJPY was relatively unchanged at 114.61.
  • Among the commodity currencies CAD was the standout, managing to hold stable at USDCAD 1.2514. AUD fell 0.44% to 0.7185 while NZDUSD sank 0.46% to 0.6776.



  • Anticipated rate hikes by the US Federal Reserve continues to weigh on some of the more speculative tech growth stocks, and the NASDAQ endured a -2.6% sell-off yesterday. Nor were the two other major US indices immune, as the Dow Jones shed -1.5% and the S&P 500 -1.8%. That followed similar losses in Europe earlier in the day where the FTSE 100 lost -0.6%, the CAC -0.9% and the DAX -1.0%.
  • Within the region, things were somewhat more bullish, and while the DFM dropped -0.1%, the Tadawul (0.2%) and the ADX (0.8%) both ended the day higher, as did the EGX 30 (0.2%). However, Turkey’s Borsa Istanbul 100 lost -5.1% yesterday.


  • Oil prices pushed higher again although the gains were relatively moderate considering the geopolitical atmosphere in the market at the moment. Brent futures rose 1.2% to USD 87.51/b while WTI added 1.9% to USD 85.43/b. Shipments of oil from Iraq via Turkey have been disrupted thanks to an explosion of unknown cause.
  • OPEC’s monthly oil market report showed the producers’ alliance was confident in the outlook for oil demand this year and that oil will be “well supported,” implying the group is preparing for prices to remain high.
  • The jump in US yields overnight helped to dump gold which fell 0.3% to USD 1,813.74/troy oz even as the rest of the precious metals complex gained.

Click here to download charts and tables





Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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