Flash Estimate euro area inflation; BOE's Mann speaks; updates from easyJet, SAS.
European stocks to drop at open after Moderna CEO casts uncertainty on vaccine efficacy against new variant. U.S. futures fall. The dollar strengthens against the euro and the yen. Oil rose and gold inched higher.
European stocks are set to open sharply lower as Moderna CEO said existing vaccines will 'struggle' against the Omicron coronavirus variant.
Early futures indicated a positive open and stocks in Asia were trading broadly higher, but fragile investor confidence was dented after the article appeared in the Financial Times early Tuesday. European and U.S. stock futures dropped after the comments.
"This cautious positivity soon gave way to pessimism in late Asia trading on comments from the Moderna CEO Stephane Bancel to the FT, who predicted existing vaccines would struggle with the Omicron variant and who warned it would take months for pharmaceutical companies to manufacture enough jabs at a sufficient scale to make a difference," said Michael Hewson at CMC Markets.
"His tone contrasts with the likes of Pfizer and BioNTech was suggested any new vaccine would be able to modified fairly quickly. His rather candid comments have also seen oil prices slide back sharply, as an increasingly jittery market react with concern to the prospects of further restrictions and lower demand," said Hewson.
President Biden said Monday that Omicron was "not a cause for panic." The administration is working with drug companies to develop contingency plans for vaccines or boosters in case they are needed to fight the new variant, he said. Some analysts expect the economic impact of Omicron to be limited as vaccine manufacturers update their shots to combat it.
"There's less likelihood we see sustained downside from something like a variant because our ability to adapt to it is higher than it was," said Hani Redha, a portfolio manager at PineBridge Investments. "The ability to tailor vaccines makes a huge difference."
Some analysts think a serious economic downturn, like what happened last year, will likely be averted because more people have been vaccinated. But they also think a return to pre-pandemic levels of economic activity has been dramatically delayed, especially in sectors such as tourism. Consumption may also be hurt.
The dollar strengthened against the euro and against the yen. "Currency traders spent Black Friday trying to get out of the store" as news of the Omicron variant triggered a flight from risk, Cambridge Global Payments' Karl Schamotta said.
This echoed "a pattern seen when the pandemic hit last year, the dollar dropped precipitously as traders unwound bets on US rate hikes, while a wipeout in carry trades boosted the euro and yen."
But a dollar recovery could be in the offing, the chief market strategist said. "Whether overall risk appetite continues to improve or last week's flight to safety resumes, the greenback seems well-positioned for outperformance against the yen and the euro," with Friday's carry trade unwind appearing to have faded.
USD/JPY recovered modestly as the global market rout driven by concerns about the Omicron variant eases. Further gains by the pair may rest on strength of the U.S. economic recovery and crude oil movements.
The emerging Covid-19 variant has triggered travel restrictions in some parts of the world and has cast a cloud over the Fed's path to tightening. Fed Chairman Powell is scheduled to appear before the Senate Banking Committee later in the day. Powell said in prepared remarks that the Omicron variant risks intensifying supply-chain disruptions that have fueled a surge in inflation.
The Norwegian krone should appreciate moderately versus the euro in 2022 as the Norges Bank raises interest rates further and the European Central Bank maintains its loose policies, Commerzbank said.
"This is unlikely to change until 2023, when the market will gradually price in that the ECB will also start to slowly raise its key rate in the second half of 2023," Commerzbank currency analyst Antje Praefcke said.
The Norges Bank has signalled it will take its policy rate to 1.0% by the end of 2022 and to 1.7% by the end of 2024, versus 0.25% at present, she said. Commerzbank expects EUR/NOK to fall to 9.65 by December 2022, from 10.1862 currently, before rising to 9.80 by December 2023.
Treasurys sold off and yields bounced back from the Omicron turmoil, with the 10-year rising to 1.542% from 1.484% Friday. Investors digested news about the new variant and came back a little calmer after the weekend.
"Omicron is unlikely to change the Fed's pathway," AmeriVet's Gregory Faranello said. "Potentially new vaccines if needed: this country has vaccine fatigue already. Won't make a difference."
Oil rose in early Asia trade as jitters caused by the Omicron variant of Covid-19 have started to ease. However, as uncertainty remains about the level of danger, OPEC has delayed its technical meeting to give it more time to assess the situation.
Aside from updates on the Omicron variant, ANZ expects traders to also focus on talks to potentially revive the U.S.-Iran nuclear deal.
Gold inched higher in early Asian trade. Traders are likely watching for the timing of an expected rate increase by the Fed, and signs that it will start to taper off asset purchases more quickly than expected, Oanda said.
Aluminum led gains in base metals in Asian trade after a recent selloff, as investors' fears over the likely impact of the Omicron Covid-19 variant on demand eased, said ANZ Research.
However, the rebound in base metals is being stymied by the current economic backdrop, the research firm said. Demand from China, which maintains Covid-zero containment measures, remains a concern due to potential shutdowns and restrictions, ANZ said.
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