• Market sentiment improves on cautious optimism surrounding Omicron during quiet Asian session.
  • US 10-year Treasury yields rebound from 16-month old support line, stock futures pare Friday’s losses.
  • US inflation data, virus updates are important for fresh impulse ahead of next week’s FOMC.

Risk tone recovers during early Monday’s inactive Asian session, favoring the US Treasury yields and stock futures to consolidate Friday’s losses.

That said, S&P 500 Futures print 0.45% intraday gains and the US 10-year Treasury yields gained 4.2 basis points (bps) to 1.378% by the press time. It’s worth noting that the Wall Street benchmarks closed negative while the US 10-year Treasury yields dropped around 10 basis points (bps) to 1.35%, the lowest since late September, the previous day.

Hopes of finding a cure to the South African covid variant, dubbed as Omicron, joins chatters that the same is less dangerous than initially feared also favored the market sentiment. After initially hitting Europe and the UK, the virus strain tightens its grip towards reaching the key global nations like the US and China. Though, global scientists are optimistic about finding the cure for the COVID-19 strain. Recently, US top Medical Officer Anthony Fauci backed Pfizer’s drug to be effective against Omicron while the news of chewing gum to stop the virus spread and the UK’s push for treatment also keeps traders hopeful.

Adding to the market’s consolidation mood could be a light calendar in Asia and preparations for Friday’s US inflation data, as well as next week’s Fed meeting. On the same line could be hopes of more stimulus from China and Japan, as well as sustained easy money policies from ECB, RBA and the BOE.

Risk appetite soured on Friday as the US dollar shrugged off a surprise drop in the US Nonfarm Payrolls (NFP) while trading the improvement in the Unemployment Rate. Also keeping the Fed rate hike expectations on the front were comments from St Louis Fed President James Bullard who is also a voting member in 2022. The policymakers said, “Could look at raising interest rates before completing the taper.”

Moving on, market players should keep track of the covid headlines for fresh direction. Also important will be any comments from the central bankers and relating to the US-China diplomatic relations amid the latest tussles.

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