Yields rebound on Fed, Omicron fears, US ISM PMI, ADP data eyed

  • US 10-year Treasury yields recover from nine-week low, stock futures print mild gains.
  • Fears of incapacity to tame South African covid variant, inflation fears and Fed rate hike underpin US Treasury yields.
  • Equities lick their wounds amid China’s cautious optimism ahead of key US data.

Having witnessed a show of risk aversion the previous day, market players remain divided during early Wednesday amid a lack of major catalysts.

Mixed concerns over the current vaccines’ ability to tackle the Omicron crisis and Fed Chair Jerome Powell’s hawkish comments were the latest help to the US Treasury yields. However, the stock futures consolidate recent losses as China stays hopeful of a better 2021 and Aussie GDP also offered a positive surprise, not to forget stimulus hopes from the US and Japan.

That said, US 10-year Treasury yields rise five basis points (bps) to 1.492% whereas the S&P 500 Futures print 0.56% intraday gains at the latest.

Moderna’s Chief Stéphane Bancel  said, per the Financial Times (FT), “that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19 and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale.” The comments from the pharmaceutical leader were contrasted by the representatives of Pfizer and Oxford marking an absence of evidence supporting the fears.

In his testimony on the CARES act before the Senate Banking Committee, Fed’s Powell said, “It is time to retire the term ‘transitory’ for inflation." The Fed boss also suggested the risk of more persistent inflation and signaled favor for discussing faster taper in the December meeting.

Elsewhere, the US CB Consumer Confidence dropped to a nine-month low and housing numbers also came in softer while Australia Q3 GDP came in better-than-forecast. Additionally, China’s Vice Premier Liu He expects strong 2021 GDP for the dragon nation whereas tensions between Russia and Ukraine escalate.

Having witnessed hawkish comments from Fed’s Powell, versus the looming covid crisis, market players will pay close attention to the incoming US data, especially relating to activity and employment, for fresh impulse. Hence, November’s ADP Employment Change and ISM Manufacturing PMI will be crucial for fresh impulse, as well as the second round of Fed Chair Powell’s testimony.

Should Powell keep his bullish bias, irrespective of the virus woes, the yields have further north to go while the stocks may witness losses.

Read: ADP Jobs Preview: Dollar rally? Why the greenback is set to rise on (almost) any figure

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