The market mood has calmed throughout the weekend, as data from South Africa points out that the omicron variant is more contagious than alpha and delta; nevertheless, the variant cases have been relatively mild. In the European session, Bank of England’s Governor Ben Broadbent said that the tight labour market will add pressure on inflation and expects it to “comfortably exceed” 5% in April of 2022. He also stated that he did not know if he would vote to raise rates in December but made it clear that UK’s central bank forecasts showed a need for higher rates. The Construction PMI for November showed an improvement to 55.5 from 54.6 In the previous month.
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German Industrial Production came in to show a growth of 2.8% in October, albeit it did little to provide any support for the single currency. Austrian central bank governor and European Central Bank governing council member Robert Holzmann said on Monday that it was very unlikely that inflation in the Eurozone would return to or fall below 2.0% in 2022. He added that inflation is set to reach its peak sometime around the turn of the year. On rate hikes, Holzmann said that the ECB should keep open the option of raising interest rates prior to the end of its net bond purchases. “In certain situations,” he said, “it may make sense to increase interest rates, but still provide the markets with liquidity through bond purchases.”
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10.00 Gross Domestic Product (QoQ) (Q3) Exp. 2.2% Prev. 2.2%
10.00 Gross Domestic Product (YoY) (Q3) Exp. 3.7% Prev. 3.7%
The global risk sentiment stabilized amid reports that Omicron patients had only shown mild symptoms. This helped ease fears about the economic fallout from the new variant of the coronavirus and boosted investors’ confidence, which was evident from a positive tone around the equity markets. Investors seem convinced that the Fed will be forced to adopt a more aggressive policy response to contain stubbornly high inflation. In fact, the markets have been pricing in the possibility of an eventual rate hike by May 2022, which should continue to act as a tailwind for the greenback.
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