COVID-19 is back on top of the agenda for investors amid fears that the new Omicron variant could stall the global economic recovery from the nearly two-year pandemic. The new strain may also raise doubts over how quickly the Federal Reserve can move to unwind stimulus to tackle spiralling inflation. Against this background, Friday’s U.S. jobs report and testimony on Tuesday by Fed Chair Jerome Powell and Treasury Secretary Janet Yellen will be closely watched. Oil prices will be in focus ahead of Thursday’s OPEC+ meeting. Meanwhile, Tuesday’s eurozone inflation data will be in the spotlight ahead of December’s keenly anticipated European Central Bank meeting. Here’s what you need to know to start your week.
New pandemic wave?
Wall Street’s three main indices tumbled on Friday as they re-opened after Thursday’s Thanksgiving holiday with energy, financial and travel-related stocks bearing the brunt of the selloff, sparked by the discovery of the new coronavirus strain.
While little is yet known of the new variant first detected in South Africa, scientists said it has a high number of mutations that may make it vaccine-resistant and more easily transmissible than the Delta variant.
“Markets were celebrating the end of the pandemic. Slam. It isn’t over,” David Kotok, chairman and chief investment officer at Cumberland Advisors told Reuters. “All policy issues, meaning monetary policy, business trajectories, GDP growth estimates, leisure and hospitality recovery, the list goes on, are on hold.”
Before Friday, investors had been upbeat about the strength of the economic recovery amid broad vaccine availability and advances in treatments, despite fears over steadily rising inflation.
Jobs report
A robust November jobs report could underline the case for the Fed to speed up unwinding its $120 billion-a-month stimulus program at its next meeting in mid-December. But a fresh wave of the pandemic could throw those plans into doubt.
Concerns over spiralling inflation, coupled with signs of an accelerating economic recovery had prompted investors to begin pricing in a faster taper and earlier interest rate hikes.
Friday’s non-farm payrolls report for November is expected to show that the economy added 550,000 jobs, bringing the unemployment rate down slightly to 4.5%.
The economic calendar for the week ahead also features the Institute for Supply Management’s indexes of manufacturing and services, along with data on pending home sales, consumer confidence and the Fed’s Beige Book.
Powell and Yellen testimony
Fed Chairman Jerome Powell, fresh from his nomination for a second term by President Joe Biden, is due to testify on the CARES Act, the central bank’s pandemic-era stimulus program, before the Senate Banking Committee in Washington on Tuesday. Treasury Secretary Janet Yellen is also due to testify.
A similar hearing will be held before the House Financial Committee on Wednesday.
Investors will be looking for fresh insights on the outlook for the economic recovery amid renewed pandemic uncertainty.
Oil demand outlook
Oil prices plunged $10 a barrel on Friday, their largest one-day decline since April 2020, as news of the new Omicron variant saw countries rush to restrict travel, adding to concerns that a supply glut could swell in the first quarter.
The Organization of the Petroleum Exporting Countries and its allies (OPEC+) is due to meet on Thursday, after last week’s decision by the U.S. and other governments to release oil from strategic reserves in a bid to lower gasoline prices.
For its part, OPEC+ has stuck to monthly output increases of 400,000 barrels per day (BPD) since August, despite calls to increase output to drive down oil prices.
“OPEC’s initial assessment of the coordinated (stockpile) release and the sudden appearance of a new variant of the coronavirus raises serious concerns about economic growth and the oil balance in coming months,” PVM analyst Tamas Varga told Reuters.
Eurozone inflation
The eurozone is to release flash inflation data for November on Tuesday. Consumer price inflation hit a 13-year high of 4.1% in October, and it is expected to stay well above the ECB’s 2% target into next year. Germany, Spain, and France are to release CPI figures on Monday and Tuesday.
With inflation surging the ECB is facing growing calls to tighten monetary policy, but with Europe battling a fresh surge of the virus and news of the new strain policy doves have fresh ammunition to push back against those calling for an early end to stimulus.
The ECB is expected to raise its 2022 inflation forecast at its upcoming December meeting. Investors also expect the ECB to announce that its pandemic-era asset purchase program will wind up in March while stepping up its long-standing bond purchase program to offset the cut to stimulus.
