LIVE MARKETS Questioning the Fed

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QUESTIONING THE FED (1028 GMT)

The ups and downs in risk sentiment these days before Christmas are leading financial markets, including the U.S. dollar and Treasury yields.

But there is more than just range-trading as some investors seem to be questioning the commitment of the Fed to raising rates in 2022.

“Market participants are not yet convinced that the Fed will be able to follow through with plans to raise rates three times next year, and to lift the policy rate to above 2% in the following years,” MUFG analysts say.

They mention the blow to Democratic spending plans and the rapid spread of the Omicron COVID-19 variant.

Such expectations have “prevented the U.S. dollar from strengthening further on the back of last week’s hawkish policy update from the Fed,” they add.

But there are also a couple of additional reasons that is keeping the greenback under pressure, including that investors are taking profits on their long dollar bets before the year-end.

Overall, MUFG believes “there is a high hurdle for the Fed to dial back tightening plans, and expect the U.S. dollar to strengthen further heading into early next year.”

The chart shows the U.S. dollar index losing momentum recently, despite hawkish statements by Fed officials.

(Stefano Rebaudo)

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MINERS AND OIL STOCKS LEAD GAINS (0828 GMT)

European stocks rise as risk appetite seems to be back after yesterday’s fall on concerns that the pandemic and a blow to Democratic spending plans in the U.S. might threaten the recovery of the global economy.

The Stoxx 600 (.STOXX) is up 0.8% with the basic material stock index (.SXPP) and the oil and gas stock index (.SXEP) leading gains, respectively up 2.2% and 1.5%.

Oil prices are showing a rebound after a rough couple of days, but worries about the impact of Omicron variant on the economy and on fuel demand are still in place.

Equity investors are unwilling to start any directional trading ahead of the holiday season, with uncertainty still surrounding the impact of Omicron on the economy.

Among single stocks, Zur Rose Group (ROSEG.S), operating in online pharmacy and pharma wholesaling, were down around 6% after Germany postponed e-prescriptions introduction.

Stocks in Bollore (BOLL.PA) rose 10% after receiving a 5.7 billion-euro offer for its African logistics assets.

(Stefano Rebaudo)

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SANTA RALLY VS THE GRINCH (0733)

If last week was all about central bank gatherings, then this week is all about how the fast-spreading Omicron Covid variant could deprive markets of any festive cheer.

New Zealand on Tuesday delayed the planned reopening of its international border because of Omicron, as several other countries reimposed social distancing measures.

Many nations are on high alert just days before Christmas and New Year celebrations, as the latest health crisis renews uncertainty in world markets and deals a fresh blow to the global economic recovery.

The number of shoppers on Britain’s high streets for instance fell by 2.6% over the weekend, market research company Springboard said on Monday. Euro zone consumer confidence data out later will likely be watched closely.

Stocks, which tumbled on Monday, appear on firmer ground for now. Asian shares cheered Chinese efforts to shore up a troubled property sector, rallying over 1% (.MIAPJ0000PUS), snapping a two-day losing streak.

Japan’s Nikkei rallied 2%, European and U.S. stock futures are firm.

And note that even as stocks tumbled on Monday, investors did not flock to traditional safe-havens such as bonds and gold. That might be because many investors have wound up positions for the year. Another explanation, say others, is that assets such as sovereign bonds are expensive.

Elsewhere, the battered Turkish lira rallied 7%, after a historic 25% recovery from record lows, as President Tayyip Erdogan unveiled a plan he said would guarantee local currency deposits against market fluctuations. read more

Key developments that should provide more direction to markets on Tuesday:

– China Mobile to raise up to $8.8 bln in Shanghai listing read more

– UK public borrowing totals 17.4 billion pounds in November read more

– UK businesses feel pressure from Omicron – Lloyds survey read more

– Japan upgrades economic view for first time in 17 months in Dec report read more

– Australia’s central bank upbeat on outlook ahead of QE decision read more

– German consumer morale darkens read more

– Euro zone flash consumer confidence December

– Federal Reserve Bank of Philadelphia issues Nonmanufacturing – – Business Outlook Survey for December 1330 GMT

– US current account Q3

(Dhara Ranasinghe)

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BUY THE DIP AGAIN (0719 GMT)

European stock futures are well in positive territory after short-covering in U.S. index futures brightened up the mood in Asian trading.

Analysts expect range-trading and not directional market trends to dominate in the next few days as the Omicron variant remains a threat for the global economy while liquidity is getting thinner and thinner ahead of the holiday season.

China equities propped up risk sentiment amid signs of more policy support by Beijing to cushion the pain for the struggling real estate sector.

(Stefano Rebaudo)

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