Futures, Global Markets Start 2022 With A Bang

If 2021 ended with a whimper, then 2022 is starting off with a bang, as futures on all major U.S. equity indexes rise on the first trading day of the year amid light volumes with markets including the U.K., Japan China, Australia and New Zealand closed for holidays. Europe’s Stoxx 600 rose 0.6%. In Hong Kong, property shares dropped and China Evergrande Group halted trading without an explanation. The dollar rose, as did bond yields and bitcoin, while oil erased earlier gains.  At 745am, emini S&P futures traded 29 points, or 0.61% higher, and rising as high as 4,790, just inches away from all time highs of 4,799.75; Dow futs were 172 points or 0.48% higher and the Nasdaq was also in the green by 29 points or 0.6%.

Investors continue to weigh the impact of the rapid spread of the omicron Covid-19 variant on the economic recovery, even as it appears less severe than earlier strains. Investors are also focusing on the policy trajectory of the Federal Reserve and other central banks into 2022, particularly as inflation continues to present a challenge.

In premarket moves, Tesla’s shares climbed 6.8% in U.S. premarket trading after the company reported record quarterly deliveries.  Alibaba ADRs dropped in premarket trading with shares listed in Hong Kong on concern that some investors may pare stakes amid data showing the conversion of company’s ADRs into Hong Kong shares has picked up pace.

And with the new year, broad, sweeping assessments are hitting the tape, such as this one from Jefferies strategist Sean Darby who wrote that last year “was simply a period of ‘risk on,’” adding that “peering into 2022, we expect volatility to rise, meaning that the return per unit of risk comes to the forefront.”

European equities rose on the first day of trading in 2022 and headed for a record on bets that the global economy can weather the impact of the omicron coronavirus variant. The Stoxx Europe 600 Index rose 0.5% to 490.47, above the record closing level set in November, led by gains by automakers and chemical sector companies. Meanwhile, the Euro Stoxx 50 climbed 0.9%. U.K. markets were closed for a holiday on Monday.

European stocks had climbed 22% last year and have posted seven consecutive quarters of gains — the longest winning streak since 1998. Most strategists expect this year’s returns to be more muted, with an average target of 506 index points for the Stoxx 600. Among individual movers, Vestas Wind Systems A/S dropped after the company announced details of its fourth-quarter order intake. Sydbank AS said the order tally was “weak.”

Asian stocks were mixed on their first trading session of 2022, with Hong Kong’s benchmark gauge dropping on concerns over the spread of the omicron variant and the financial health of China’s real estate sector.    The MSCI Asia Pacific Index was little changed after rising as much as 0.3%, weighed down by consumer discretionary and health-care firms. Hong Kong’s Hang Seng Index slid 0.5%, with Chinese developers tumbling on media reports that China Evergrande Group has been ordered to tear down apartment blocks in Hainan province. Read: Property Stocks Sink After Demolition Order: Evergrande Update Shares in Hong Kong also dropped amid a fresh wave of infections tied to an outbreak at a local restaurant. The city administered more than 7,000 initial injections on both Saturday and Sunday, the most since the end of November. “Any further restrictions to curb virus spreads remain a key risk to watch, and more clarity will be sought from economic data over the coming weeks to validate the resilience of the economy” of the U.S., said Jun Rong Yeap, a strategist at IG Asia Pte in Singapore. Malaysia’s stock index was the region’s worst performer, dropping 1.2%, while South Korea and Taiwan equities rose.

Markets in mainland China, Japan, Australia and New Zealand were closed for holidays. Asia’s stock benchmark capped an annual loss of 3.4% in 2021 in its worst performance since 2018, lagging behind the U.S. and Europe.

India’s key equity gauges posted their best gain in nearly four weeks, led by a rally in banking and software stocks as investors shift focus to the upcoming corporate earnings season for the latest quarter.  The S&P BSE Sensex rose 1.6% to 59,183.22 in Mumbai, the most since Dec. 8. The benchmark also posted its biggest advance on the first trading day of a new year since 2009. The NSE Nifty 50 Index gained by a similar magnitude on Monday. All of the 19 sector sub-indexes compiled by BSE Ltd. climbed, led by gauges of banking and financial companies. The corporate earnings season for the December quarter will start with Infosys and Tata Consultancy Services announcing results on Jan. 12. Investors will be focusing on the software exporters’ commentary on demand amid rising cost pressures. HDFC Bank contributed the most to the index gain, increasing 2.7%. Out of 30 shares in the Sensex index, 25 rose and five fell

With much of Europe including the U.K. on bank holiday, Treasuries reopen around 7am ET with yields cheaper by 2bp to 4bp across the curve and losses led by belly.  U.S. 10-year yields around 1.535%, cheaper by ~2bp vs Friday’s close, while 5-year yields are higher by more than 3bp; 5s30s is flatter by ~1bp. Gains for most European stock benchmarks add to cheapening pressure on yields, as S&P 500 futures trade above Friday’s high.  Ahead of the cash open Treasury futures edged lower during Asia session European morning on light volume as S&P 500 futures advanced toward last week’s record highs.

In FX, the Bloomberg Dollar Spot Index inched up and the dollar traded mixed against its Group-of-10 peers in thin trading, with Japan, Australia and New Zealand markets shut for holidays. The Canadian dollar was the worst performer while the New Zealand dollar climbed against all of its Group-of-10 peers. The euro slipped to trade around $1.1350 and Bund yields rose, led by shorter maturities, while European peripheral spreads narrowed.

In commodities, in early trading oil rose towards $79 a barrel on Monday supported by tight supply and hopes of further demand recovery in 2022 spurred in part by a view that the Omicron coronavirus variant is unlikely to significantly dampen the outlook. Libyan oil output will be cut by 200,000 barrels per day for a week due to pipeline maintenance. OPEC and its allies, known as OPEC+, are expected to stick to a plan to raise output gradually at a meeting on Tuesday.

Brent crude rose 95 cents, or 1.2%, to $78.73 a barrel. West Texas Intermediate crude added $1.03 or 1.4%, to $76.24. Last year, Brent rose 50%, spurred by the global recovery from the COVID-19 pandemic and OPEC+ supply cuts, even as infections reached record highs worldwide.

“Infection rates are on the rise globally, restrictions are being introduced in several countries, the air travel sector, amongst others, is suffering, yet investors’ optimism is tangible,” said Tamas Varga of oil broker PVM. “It seems that the current strain produces less severe symptoms than its predecessors, which might just help us to struggle through the fourth wave of the pandemic.”

Some see more gains in 20222: “Crude and oil product prices should benefit from oil demand moving above 2019 levels,” said a report from UBS analysts including Giovanni Staunovo. “We expect Brent to rise into a $80–90 range in 2022.”

Key U.S. events this week include minutes of the December FOMC meeting and non-farm payrolls; on deck today is the Flash Markit Manufacturing PMI read for December as well as the November construction spending data.

Market Snapshot

• S&P 500 futures up 0.5% to 4,781.25
• STOXX Europe 600 up 0.5% to 490.21
• MXAP little changed at 193.17
• MXAPJ little changed at 630.24
• Nikkei down 0.4% to 28,791.71
• Topix down 0.3% to 1,992.33
• Hang Seng Index down 0.5% to 23,274.75
• Shanghai Composite up 0.6% to 3,639.78
• Sensex up 1.6% to 59,208.86
• Australia S&P/ASX 200 down 0.9% to 7,444.64
• Kospi up 0.4% to 2,988.77
• Brent futures up 1.6% to $78.99/bbl
• Gold spot down 0.1% to $1,827.19
• U.S. Dollar Index up 0.1% to 95.80
• German 10Y yield little changed at -0.18%
• Brent futures up 1.4% to $78.83/bbl

Top Overnight News from Bloomberg

• Senate Majority Leader Chuck Schumer is vowing to bring a revised version of the $2 trillion tax, climate and spending package to the floor for a vote as soon as this month, despite unresolved differences within his party that have stalled the legislation
• President Joe Biden reaffirmed U.S. support for Ukraine’s sovereignty on Sunday in a call with the country’s president, Volodymyr Zelenskiy
• Germany’s Finance Minister Christian Lindner said the new government is working on tax relief measures of more than 30 billion euros ($34 billion)
• Turkish inflation surged to a 19-year high in December, propelled by a slump in the lira and President Recep Tayyip Erdogan’s push for cheaper borrowing
• Asia’s factory activity continued its expansion in December, lifted by resilient demand and easing supply-chain bottlenecks as the omicron strain begins to spread in the region

Top Asian News

• North Korean Defector Likely Crossed DMZ Twice, Seoul Says
• Property Stocks Sink After Demolition Order: Evergrande Update
• Alibaba Drops on Concern Over Conversion of ADRs to H.K. Shares
• Hong Kong’s Stock Benchmark Marks Its Worst Start in Three Years
• Star China Stock Fund Manager Suffers a Disastrous 2021
• Tokyo Finds 103 New Covid Cases, Most in Nearly Three Months

Top European News

• Nordea Analysts Who Wrote Retracted Report to Leave Bank
• Iveco Valued at $4.4 Billion in Spinoff to Navigate Truck Shift
• Germany Heads Toward New Pandemic Measures as Omicron Threatens

US Event Calendar

• 9:45am: Dec. Markit US Manufacturing PMI, est. 57.7, prior 57.8
• 10am: Nov. Construction Spending MoM, est. 0.7%, prior 0.2%