Omicron Fears Ease, Biden-Putin Summit, Intel Spin-Off – What’s Moving Markets

Risk-on sentiment returns to global markets as fears of Omicron-variant Covid-19 recede. U.S. stocks are set to open sharply higher again later, building on Monday’s gains. China’s exporters and importers were still going strong in November, and U.S. trade data are due. Presidents Joe Biden and Vladimir Putin will try to take the tension out of the situation on the Ukrainian border later in a telephone call, while U.S. oil inventory data are due. Intel (NASDAQ:INTC) is meanwhile set to spin off its Mobileye (F:0ME) unit to help raise cash for its looming expansion of chip capacity. Here’s what you need to know in financial markets on Tuesday, 7th December.

1. Risk on returns as Omicron fears ease

Risk appetite returned to global markets, amid increasing confidence that the Omicron variant of Covid-19 will not set the world economy back and may even accelerate the end of the pandemic.

European and Asian markets rallied overnight, as investors digested Anthony Fauci’s upbeat comments over the weekend. Fauci had said initial reports about the relative mildness of infection caused by Omicron were “quite encouraging” but added the caveat that it was still early days. First indications are that Omicron is more transmissible than the Delta variant, but less likely to cause serious illness.

GlaxoSmithKline (LON:GSK) (NYSE:GSK) said earlier that further preclinical trials of its experimental antiviral drug sotrovimab (developed jointly with Vir Biotechnology (NASDAQ:VIR) has shown that it remains effective against the variant, bolstering hopes that other existing treatments too will also cope with the heavily mutated strain of the disease.

2. Chinese easing, steel rumours allay real estate debt fears; trade data impress again

Another big factor behind the return of risk on has been the loosening of Chinese monetary policy, in the shape of China’s reserve ratio cut on Monday.

That has been accompanied by speculation that the government will soon reverse its curbs on steel production, which were imposed in the summer on pollution grounds. Iron ore Futures rallied over 6% in Dalian, on the prospect of higher demand from the steel sector. Chinese trade data for November, meanwhile, were stronger than expected both on the import and export side.

More available steel and cheaper finance should help the real estate sector in its ongoing debt crisis, even if the measures come too late for some. China Evergrande failed to meet its payment obligations on Monday, and has appointed a risk management committee to deal with what is likely to be a full restructuring of its $300 billion debt pile. Rival developer Kaisa has a $400 million bond maturing Tuesday, but investors have already signalled they will show forbearance.

3. U.S. Stocks set to open sharply higher; Intel in focus

U.S. stocks are set to open sharply higher later, in line with the global risk-on tone.

By 6:20 AM ET (1120 GMT) Dow Jones futures were up 364 points, or 1.0%, while S&P 500 futures were up 1.3% and Nasdaq 100 futures were up 1.8%.

Stocks likely to be in focus later include Intel, which has confirmed plans to spin off its Mobileye unit around the middle of 2022, a move that will help strengthen its balance sheet as it embarks on an expensive expansion of manufacturing capacity.

U.S. trade data for November are also due, with the import numbers being of particular interest to those tracking the development of U.S. consumption.

4. Biden-Putin summit

U.S. President Joe Biden and his Russian counterpart Vladimir Putin are due to speak by telephone later in an effort to defuse the tension on the Ukrainian border.

Russia has massed over 150,000 troops on its side of the border and complained increasingly loudly about Ukrainian attacks on the two breakaway republics in its east that have been supported by Russia for the last seven years.

Biden is reported to have agreed a suite of deterrent measures with the U.S.’s European allies to inflict “severe economic harm” on Russia if it invades. The new German government has indicated it would approve a tougher line on the country in future, giving greater weight to concerns of international law and human rights and less to German business interests in Russia. Whether that will stand the coming test of Realpolitik is not yet clear.

The ruble was broadly stable while the benchmark RTS stock index ticked up 0.5%. Both are more easily moved by oil prices than by geopolitical noise.

5. Oil surges on Omicron hopes; API data, STEO due

Crude oil prices surged to their highest in two weeks. Fears that Omicron-variant Covid-19 could cripple the nascent recovery in international air travel and trigger other demand-killing public health measures have eased in the last couple of days, while talks to revive the UN-backed deal with Iran – and consequently lift U.S. sanctions on its oil exports – have also run into the sand at an early stage.

By 6:30 AM ET, U.S. crude futures were up 3.1% at $71.65 a barrel, while Brent crude futures were up 2.5% at $74.93 a barrel.

The U.S. government releases its Short-Term Energy Outlook at 12 PM ET, while the American Petroleum Institute will publish its weekly oil inventory data at 4:30 PM ET as usual.