North American Morning Briefing: Stock Futures Edge Up as Thin Holiday Trading Continues

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Stock futures edged higher Wednesday in quiet trading over the holiday period, as investors remained optimistic despite rising Covid-19 cases.

Stocks have largely edged up in recent days as markets look ahead to the new year, with many expecting a continued economic recovery and strong earnings from companies.

Investors say they are becoming increasingly comfortable with the theory that the Omicron variant may not lead to harsh restrictions on commerce and movement as more information emerges. State governors are implementing light-touch measures to try to avoid disruptions.

“There’s an element of positivity. The data continues to suggest that the disease itself caused by Omicron is materially less severe than the variants which have preceded it,” said James Athey, an investment manager at Abrdn. “That’s always been the endgame for the pandemic.”

Read Barrons.com: Omicron’s Spread Will Slam First-Quarter GDP. Here’s How Bad Things Look

Fresh data on the housing market is slated to go out at 10 a.m. ET when the National Association of Realtors puts out a report on U.S. pending home sales in November. Economists are forecasting a slowdown from the previous month.

Overseas, the pan-continental Stoxx Europe 600 rose 0.2%, rising for a third straight day and trading close to its all-time high. The FTSE 100 advanced 1.1% on the first day of trading this week after U.K. markets were closed for bank holidays.

In Asia, most major benchmarks slid, led by declines in technology stocks.

Stocks to Watch:

Tesla rose 2.3% in premarket trading. Elon Musk exercised the final batch of a package of vested stock options, a series of transactions that have boosted his stake in the company.

Shares in egg producer Cal-Maine Foods sank 7.7% in out-of-hours trading after the company reported a decline in profit, citing higher costs.

Forex:

The dollar could weaken further if Omicron infection cases fall and social restrictions are less severe than feared, said Oanda, adding that support remains between levels of 95.80 and 95.85, and resistance at 96.30 initially.

Currency markets remain largely in holiday mode but Oanda expects activity to pick up in the second half of next week.

Bitcoin was trading below $48,000, adding to losses that have seen cryptocurrencies limp into the end of the year. Ethereum, the second-largest digital currency, fell more than 3% to below $3,800.00.

While demand for the two largest cryptocurrencies has waned into the end of the year, amid rising interest rates, tighter liquidity in financial markets and shifting regulatory stances, they both have posted sizable gains in 2021. Bitcoin has risen 65% year to date, while Ethereum has soared a whopping 414%.

Bonds:

Treasury yields were little changed in subdued European trading, as investors remained hopeful that Omicron would have limited global economic impact.

Tuesday’s surge in short-term yields was driven by “market optimism that Omicron will soon fade and that the Federal Reserve will bring forward its intention to hike rates as soon as the March Federal Open Market Committee meeting,” said Steen Jakobsen, chief investment officer at Saxo Bank.

Further out, however, “much of the U.S. yield curve is rather stuck in the mud, either because the market doesn’t believe in the outlook for sustained inflation or because it is predicting a drastic slowdown in the economy beyond the next year or two,” Jakobsen said.

Lawrence Gillum, fixed-income strategist at LPL Financial, sees the yield on the 10-year note climbing only modestly in 2022, ending the year in a range of 1.75% to 2%.

“For 2022, near-term inflation expectations above historical trends and improving growth expectations once the Covid-19 variants recede are reasons why we believe interest rates could move moderately higher from current levels,” Gillum wrote in an outlook published Monday.

On the flip side, an aging global population in need of income and continued bullishness around U.S. stocks, potentially triggering a “more frequent rebalancing into fixed income,” are two reasons why his team thinks longer-term rates will fail to move much higher next year.

Read more here.

Commodities:

U.S. oil futures remained above $76 in Europe, with investors looking ahead to official crude inventory data which could add pressure to oil markets that have enjoyed a recent rally.

“Omicron’s rampage could show up in higher oil derivative stockpiles. That may give the oil recovery some food for thought but is very unlikely to derail it,” said Oanda’s Halley. “The fast-money tail-chasers inhabiting the oil market recently look like they are finally taking a holiday break instead of drinking too much coffee.”

Copper nudged higher, while other base metals were mixed, as trading resumed in London after the holiday break, although volumes are expected to remain light until after the new year. Both this week and next will be shortened trading weeks, with the LME also closed on Jan. 3.

   
 
 
   
 
 

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December 29, 2021 05:50 ET (10:50 GMT)

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