Omicron Surge, ISM Survey, OPEC+ Meeting

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By Geoffrey Smith — The U.S. posts 1 million Covid-19 cases in a day – and the actual number is probably higher than that. However, markets are still advancing on the assumption that the faster spread of a less virulent strain means the beginning of the end of the pandemic. The Institute of Supply Management publishes its December manufacturing survey, and the Labor Department publishes its JOLTS report for November. China’s manufacturing PMI hits its highest since June, and OPEC meets with its allies to decide on output quotas for February. Here’s what you need to know in financial markets on Tuesday, 4th January.

1. Omicron surge

The U.S. notched more than 1 million new cases of Covid-19 on Monday, beating the previous record for any country worldwide by a distance. The figures are skewed by the holidays, which have delayed reporting in some cases, but which – as usual – sharply increased the potential for transmission.

Omicron, the new dominant strain of the disease, appears to cause less severe illness than previous strains: hospitalizations are still around 30% below last year’s peak, and in South Africa, where the new variant first emerged, the wave of infections has peaked without overstraining the country’s health service. Still, the short-term surge in cases is leading to increased absenteeism, especially in service sectors such as airlines and healthcare. Over 4,000 flights were cancelled over the last weekend in the U.S.

Overseas, the Indian capital of Delhi reimposed a weekend curfew to stem the rise in cases.

2. Carriers agree to two-week delay of 5G launch

Verizon (NYSE:) and AT&T (NYSE:) agreed to delay the launch of 5G services for two weeks after more pressure from aviation regulators and airlines, but said that their services would still go live this month.

The carriers are in a hurry to start monetizing the investments they’ve made in spectrum and network infrastructure, while the Federal Aviation Authority and airlines are concerned about the risk to cockpit safety systems in an around airports.

Airlines 4 America, the industry lobby group, had threatened to cancel thousands more flights unless their concerns were addressed. Airline stocks were broadly higher on perceptions that Omicron will bring an accelerated end to the pandemic without further economic disruptions, while the two carriers’ stocks edged up.

3. Stocks set to open higher on pandemic hopes

U.S. stocks are set to open at fresh record highs later, on confidence that Omicron will push the U.S. toward herd immunity faster, allowing the economic rebound to continue unimpeded.

Sentiment was also boosted by some eye-catching headlines including Tesla’s record deliveries in the fourth quarter and Apple’s brief flirtation with a market value of $3 trillion.

By 6:20 AM ET (1120 GMT), were up 132 points, or 0.4%, while the and contracts were both up in line.

In the bond market, 10-year U.S. Treasury yields were consolidating at 1.62%, after rising 13 basis points in the first days of 2022, amid fears that inflation is likely to stay uncomfortably high for the next few months.

4. ISM PMI expected to cool a little; China’s hits 6-month high

The Institute for Supply Management will release its monthly manufacturing survey at 10 AM ET, and is expected to show a slight cooling off in December, both in terms of overall activity and – importantly – in input and output prices.

The Labor Department will also publish its monthly Job Openings and Labor Turnover Survey for November, which will show whether October’s dip in the so-called ‘quit rate’ was just a blip or the start of something more like a trend.

Economic data from around the world overnight were broadly encouraging, with China’s Caixin manufacturing PMI beating expectations to hit its highest level since June. In the Eurozone, French inflation data supported the European Central Bank’s view that inflation is close to peaking, while German unemployment fell more than expected in December. German retail sales for November were weak, but not as weak as thought.

5. OPEC+ set to continue increasing output quotas 

The Organization of Petroleum Exporting Countries and its allies are expected to go ahead with another 400,000 barrel-a-day increase in output quotas from February when they meet later in Vienna.

Whether OPEC countries – in particular those in Africa and Latin America – will actually be able to meet those production quotas is another question. The bloc has missed its production targets for the last three months, due largely to past underinvestment catching up with state oil companies. That is not a constraint for either Russia or Saudi Arabia, the bloc’s two biggest exporters.

Elsewhere, China cut export quotas for its refiners substantially in a move that suggests the authorities are keen to keep a lid on domestic prices.

futures rose 0.3% to $76.31 a barrel, while futures rose 0.3% to $79.19 a barrel.

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