Uncertainty remained very high and there was a fresh slide in Asia on Tuesday as Moderna comments increased fears over vaccine effectiveness.
Risk appetite recovered on Monday with hopes that the Omicron variant would generally lead to mild infections. Uncertainty remained very high and there was a fresh slide in Asia on Tuesday as Moderna comments increased fears over vaccine effectiveness.
US Treasuries rallied from lows on Monday and yields declined sharply on Tuesday with the 10-year yield below 1.50%.
Wall Street posted strong gains on Monday, but futures erased gains on Tuesday. European bourses faded from initial highs and Asian bourses posted net losses, although China was resilient.
The dollar failed to sustain a recovery amid lower yields and concerns over the Omicron impact on the US economy. EUR/USD moved back above 1.1300 with a fresh round of short covering. Sterling was unable to make headway, but GBP/USD did recover from fresh 2021 lows below 1.3300.
Recoveries in commodity currencies faded quickly on Tuesday.
Euro-zone industrial sentiment declined marginally to 14.1 for November from 14.2 the previous month while services sentiment improved to 18.4 from 18.0 with both figures above consensus forecasts. There was a slight net improvement in the business climate index, but with concerns over a fresh retreat in the short term.
The Euro posted renewed gains ahead of the New York open and pushed back above the 1.1300 level, but again failed to hold above this level and dipped lower into the New York open as the impact of a closing of carry trades faded again in choppy trading.
The German CPI inflation rate increased to 5.2% for November from 4.5% previously which was above consensus forecasts of 5.0% and the highest reading since the middle of 1992. The HICP inflation rate also increased to 6.0% and the highest reading since the series started. There were hopes that this would represent a peak inflation rate for Germany and the Euro failed to gain any significant support amid expectations of a dovish ECB policy.
EUR/USD retreated to the 1.1260 area before regaining ground towards the New York close. Markets will be on alert over month-end position adjustment on Tuesday which could lead to further choppy trading.
Fed Chair Powell will testify to Congress on Tuesday and in prepared remarks he stated that factors pushing inflation higher will linger well into next year. He stated that the labour market is still tightening with diminishing slack, although the rise in coronavirus cases poses downside risks.
Risk conditions dominated on Tuesday with fresh concerns over the Omicron situation and EUR/USD traded above 1.1300 as the dollar retreated and commodity currencies came under renewed pressure.
The US Dallas Fed manufacturing index edged lower to 11.8 from 14.6 the previous month. After sharp gains on Friday, there was a retreat in US Treasuries on Monday with markets considering that the moves late last week have been an over-reaction in thin trading conditions.
Yields, however, dipped again towards the European close which stemmed potential yen selling and USD/JPY hit resistance just below 114.00. The dollar was still able to post significant net USD/JPY gains to around 113.75 towards the New York close.
China’s manufacturing PMI index edged higher to 50.1 for November from 49.2 previously and slightly above expectations while the non-manufacturing index was little changed at 52.3 from 52.4. The data provided an element of relief, although the impact was limited as risk conditions dominated.
Risk appetite, however, dipped again late in the Asian session following comments by Moderna CEO Bancel that there will be a material drop in vaccine effectiveness against Omicron. Equity markets dipped sharply in response and there was fresh yen demand with USD/JPY sliding to near 113.00.
UK mortgage approvals declined to 67,200 for October from 71,900 previously and below consensus forecasts of 71,000 for the month with a sharp overall slowdown in mortgage lending to £1.6bn. Consumer credit was also positive on the month, although the overall increase in consumer lending slowed to £2.3bn from £9.6bn.
Sterling was unable to gain significant support despite a net improvement in risk appetite and gradually lost traction during the day.
There were further doubts whether the Bank of England would push ahead with an interest rate hike in December, especially given increased uncertainty triggered by the new Omicron variant. Increased expectations of a delay tended to undermine potential UK currency support.
There is liable to be choppy trading during the day due to month-end position adjustment. Risk appetite also dipped again on Tuesday which had an important impact with GBP/EUR dipped to near 1.1775 although GBP/USD held just above 1.3300.
|07:45||Consumer Spending MM(OCT)||0.30%||-0.20%|
|07:45||GDP Detailed QQ||0.90%||3.00%|
|08:00||GDP Prelim YY||17.30%||3.80%|
|08:00||GDP Prelim QQ||2.70%||2.60%|
|08:00||CHF KOF Leading Indicator(NOV)||110.7|
|08:55||German Unemployment Change(M/M)(NOV)||-20K||-39K|
|08:55||German Unemployment Rate(M/M)(NOV)||5.40%|
|10:00||CPI (EU Norm) Prelim MM(NOV)||0.40%||0.70%|
|10:00||CPI (EU Norm) Prelim YY(NOV)||2.60%||3.00%|
|10:00||CPI (EU Norm) Final MM*(NOV)||0.90%|
|10:00||CPI (EU Norm) Final YY*(NOV)||3.20%|
|10:00||Euro-Zone CPI (Y/Y)(NOV)||3.70%||4.10%|
|13:30||CAD GDP Annualized (Q/Q)||-0.30%|
|13:30||CAD GDP (Y/Y)||-55.40%|
|13:30||CAD GDP (M/M)(OCT)||0.40%|
|14:00||US House Price Index (M/M)(SEP)||1.00%|
|14:45||USD Chicago PMI(NOV)||68.4|
|21:30||AUD AiG Performance of Manufacturing Index(NOV)||50.4|