Animal Spirits Roar Back – Tuesday, Dec. 7

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Market View: A return of risk appetites can be seen through the capital markets today, arguably encouraged by ideas that Omicron is manageable and China’s stimulus. Led by Hong Kong and Japan, the MSCI Asia Pacific rose by the most in three months, while Europe’s Stoxx 600 gapped higher, leaving a potentially bullish island bottom in its wake. US futures point to a gap higher opening when the local session begins.

The bond market is taking it in stride. The US 10-year Treasury is slightly firmer at 1.44%, while European yields are 1-3 bp higher. The dollar-bloc currencies and Norway are leading the move higher among most major currencies. The yen and euro are softer. Sterling struggles to sustain upticks. Among emerging markets currencies, the Turkish lira is bouncing, while most central European currencies are being dragged lower by the weaker euros.

The JP Morgan Emerging Market Currency Index is slightly higher after four consecutive losses. Gold is trading within yesterday’s narrow range. Oil continues to recover, and the January WTI contract is up around 2.5% (after yesterday’s 4.9% advance) and is above $71.50 a barrel. US natgas prices dropped 11.5% yesterday and have come back firmer today, while the European benchmark (Dutch) is up 7% today (~+0.5% yesterday) to near last week’s highs. Iron ore prices jumped 7.7% today after 2.5% yesterday, perhaps encouraged by strong Chinese import figures. Copper prices are also firm.

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