Omicron Variant May Not Fuel Inflation As Some Federal Reserve Officials Expect

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Good day. As it looked like supply chains were easing off a bit, the Omicron variant arrives to worry Federal Reserve officials. But if they are concerned that the variant will lead to a new round of supply chain disruptions that push prices even higher, something else could be in store for the U.S. economy. Further on, the Reserve Bank of Australia left its official cash rate at 0.10% at its monthly policy meeting earlier today, indicating that it will take some time before the conditions required for a increase are in place and addressing concerns about the Omicron variant of the Covid-19 virus.

Now on to today’s news and analysis.

Top news

Omicron Will Cause Problems, But Inflation May Not Be A Problem

Federal Reserve policymakers fear the Omicron variant will exacerbate companies’ supply chain and hiring problems, pushing up prices. The actual outcome could be different, writes Justin Lahart. Omicron could make people less willing to spend than they were in previous waves of Covid-19. Demand for big ticket items, in particular, such as cars, appliances and furniture – some of the biggest contributors to rising inflation – could slow.

RBA says Omicron won’t derail economic recovery

In reassessing its quantitative easing program, the Reserve Bank of Australia will take into account the actions of other central banks; how the Australian bond market works; and move towards full employment and inflation in line with its goal, writes James Glynn.

American economy

Junk-Bond investors fear bumpy 2022 after November slump

Want to know how a hike in interest rates next year might unexpectedly hit the markets? Look at the recent junk bond liquidation, writes The Wall Street Journal’s Matt Wirz. The slowdown began in early November when new inflation data fueled fears of an interest rate hike, and then accelerated when the Omicron coronavirus variant rocked stock markets. As the prices of below-investment grade corporate bonds stabilized over the past week, investors continued to withdraw cash from funds that buy debt.

Key developments around the world

China increasingly obscures the true state of its economy to foreigners

The Chinese Communist Party has long maintained tight control over information, and efforts have intensified under leader Xi Jinping. The country has become increasingly opaque over the past year, even as its presence on the world stage grows.

Tax revenues held steady even as economies collapsed during pandemic

Government tax revenues increased in rich countries as a proportion of economic output in 2020, as job losses were concentrated in low-wage jobs and high-income jobs were less hit, underscoring the unprecedented nature of the contraction with the first wave of Covid-19.

Europe Dominates China Generating Billion-Dollar Tech Startups

Europe has overtaken China in creating billion-dollar tech startups, according to a new analysis that highlights Europe’s growing status in the field and the effect of Beijing’s crackdown on capitalist entrepreneurship.

Overview of financial regulation

Stacey Cunningham, NYSE’s first female president, resigns

New York Stock Exchange President Stacey Cunningham will quit her job at the end of the year, NYSE parent company said on Monday. She is replaced by Lynn Martin, an executive at the parent company of NYSE Intercontinental Exchange Inc., known as ICE.

Biden administration unveils plans to fight corruption

The Biden administration on Monday unveiled measures to fight corruption around the world, including assistance to foreign governments to increase financial transparency and new regulations on real estate purchases in the United States to prevent money laundering.

Prospective indications

Tuesday (every hour ET)

8:30 am: US Department of Commerce releases October international trade data

3 p.m .: Federal Reserve releases October data on U.S. consumer credit

Wednesday

Time N / A: National Bank of Poland issues policy statement; Central Bank of Brazil issues policy statement

3:15 am: Lagarde from the European Central Bank delivers a pre-recorded speech at the European Systemic Risk Council conference

3:30 a.m .: De Guindos from the European Central Bank gives a speech at the Banking Forum and at the Fintech Expo

6:30 a.m .: De Guindos from the European Central Bank speaks at the European Systemic Risk Council conference

8:10 a.m .: Enria from the European Central Bank and Schnabel speak at the European Systemic Risk Council conference

10 a.m .: US Department of Labor releases survey of October job openings and workforce turnover

Research

The use of reverse repurchase agreements is still relevant despite the rise in money market rates

A hike in key money market rates was not enough to take money out of the Federal Reserve’s repo facility, said Scott Skyrm, who heads short-term trading firm Curvature Securities. Mr Skyrm notes that money market rates now match or exceed the 0.05% that fund managers and banks are paid to park money at the Fed, but that doesn’t take money out of the facility. reverse repurchase agreement. It brought in $ 1.5 trillion on Monday, about as much as it has attracted in recent days. “Maybe that means [general collateral] the rates must reach 0.08% or 0.09% before [reverse repo] money is coming back to the market, ”he wrote in a note to customers, adding that“ more [reverse repo] liquidity is entering the market, which puts downward pressure on rates. This means that when rates start to rise, [reverse repo] cash will act as an anchor, keeping pension rates lower for longer. ”

– Michael S. Derby

Publication of an updated document on Treasury payment interruptions

The Treasury Market Practices Group, which is made up of private market participants and sponsored by the Federal Reserve Bank of New York, on Monday released a revised version of a 2013 document that eliminates various contingencies in the event of disruption of debt payments. US Treasury debt. The document arrives with the government at the risk of not being able to pay past borrowing related to the debt ceiling to account for spending plans already authorized. Congress is due to raise the debt ceiling by mid-month. The paper does not directly allude to the issue of the debt ceiling, but it notes that its authors “hope that this paper will put more emphasis on some of the relevant issues and, at a minimum, serve as a useful starting point for everything. future discussions. ”

– Michael S. Derby

Remark

Evergrande’s haircut and help for Chinese banks

A timely reduction in the reserve requirement ratios of Chinese banks, announced Monday evening, could be aimed in part to appease markets before any further turbulence linked to Evergrande, writes Jacky Wong.

Base points

The Conference Board’s employment trends index reached 114.49 in November, from a revised 113.03 in October, the Conference Board said, suggesting that the recovery in the US labor market has accelerated over the course of the year. month. (Dow Jones Newswires)

Inflation expectations of Brazilian economists this year and next have deteriorated slightly over the past week, according to the country’s weekly central bank survey. The median forecast of 135 economists polled was for 12-month inflation of 10.18% this month, up from 10.15% in the previous survey. For 2022, the median forecast has dropped from 5.0% to 5.02%. (DJN)

Brazil’s auto sales and production fell in November compared to the previous year, the country’s National Association of Motor Vehicle Manufacturers said. Motor vehicle sales fell 23.1% to 172,964 from November 2020, while vehicle production fell 13.5% from a year earlier to 206,042, the group said. . Sales and production both increased from October, by 6.5% and 15.1% respectively. (DJN)

Mexican production of cars and light trucks fell 20% in November from the previous year to 249,000 units, and fell 0.7% between January and November to just under 2.8 million, said the statistics institute Inegi. (DJN)

Chinese exports exceeded market expectations in November, although the growth rate slowed from October due to a higher base compared to the same period a year earlier. Outbound shipments rose 22% from a year earlier in November, slowing from a 27% increase in October, the General Administration of Customs said on Tuesday. The result exceeded the 16.1% growth rate expected by economists polled by the Wall Street Journal. (DJN)

China’s foreign exchange reserves rose $ 4.77 billion to $ 3.222 billion in November on the strength of the dollar, the People’s Bank of China said on Tuesday. The result was the opposite of a consensus drop of $ 10 billion expected by economists polled by the Wall Street Journal, marking a second consecutive monthly increase in reserves. (DJN)

The eurozone economy grew at a sustained pace in the third quarter, almost completely closing the gap from the Covid-19-induced recession, but growth is expected to slow sharply in the coming months as the impetus for reopening is fading. The gross domestic product of the euro area increased by 2.2% from July to September compared to the previous three months, according to the final GDP release from the European Union statistical agency, confirming the second estimate published on 16 November. (DJN)

German industrial production increased in October, although supply chain bottlenecks persist. Total industrial production – including production in industry, energy and construction – rose 2.8% on the month in October in calendar-corrected terms, the Destatis statistics office said on Tuesday. Economists polled by the Wall Street Journal were forecasting an increase of 1.0%. (DJN)

 

(END) Dow Jones Newswires

December 07, 2021 09:10 ET (14:10 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.


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