Tech Rattled, Omicron Advances, German Gloom – What’s Moving Markets

Technology stocks are set for fresh selling as the world adjusts to the looming end of free money from central banks. China imposes its first Omicron-related restrictions, while data from South Africa give more grounds for optimism about the relative mildness of the new variant of Covid-19. German business gets even gloomier despite shimmers of light on the horizon, while the Bank of Japan joins the global tightening trend even more hesitantly than the European Central Bank. Here’s what you need to know in financial markets on Friday, 17th December.

1. Tech under pressure

Technology stocks are set to extend their Thursday losses when they open later, as a gradual tightening of monetary policy around the world brings to an end an era of free money for bets on long-duration growth prospects.

The Nasdaq Composite fell 2.5% on Thursday, its second daily drop of more than 2% already this month, as investors fled unprofitable growth names and took profits even in more defensive and cash-rich names such as Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA).

Apple stock fell 3.9% on Thursday and was down another 1.8% in premarket. Tesla (NASDAQ:TSLA) stock was down 1.6%.

The Nasdaq has still more than doubled from its level in March 2020 in the early days of the pandemic. By 6:35 AM ET (1135 GMT), Nasdaq 100 futures were down 0.7%, while Dow Jones futures were down 0.1% and S&P 500 futures were down 0.3%.

2. China starts to move on Omicron

Countries around the world continued to adopt public health measures to stop the spread of the Omicron variant of Covid-19. The Chinese region of Guangdong, including its capital Guangzhou, introduced its first – albeit localized – restrictions on movement, while Italy angered other EU member states with fresh testing requirements on those arriving from abroad.

There was better news from South Africa, the first country to identify the Omicron variant. Latest data indicated hospitalisation rates lagging well behind those seen in previous waves. However, health experts have warned against extrapolating too much from South African data, given the young skew of its population and the much greater spread of vaccination since the last Covid wave.

In Europe, meanwhile, there was the first sign that governments will have to reopen the fiscal support taps to cushion the economic slowdown caused by the latest surge. Sweden said it will resume support payments for businesses hit by the sharp drop in demand for some consumer-facing services.

3. BoJ signals modest tightening ahead; Russia, Mexico hike & Colombia is next up

The global tightening of monetary policy advanced further overnight, with the Bank of Japan saying it will stop its purchases of corporate bonds and commercial paper in March as planned.

As tightening steps go, that’s on a par with the European Central Bank’s promise to dial down quantitative easing from March 2022 onwards. There is no hint of either central bank raising interest rates next year.

By contrast, the Central Bank of Russia hiked its key rate another 100 basis points to 8.5%. That follows interest rate hikes in the Norway, the U.K. and Mexico on Thursday (the last two of which were hawkish surprises). Colombia is expected to raise its key rate by 0.5% later.

4. German gloom deepens despite signs of inflation peaking

The gloom continues to deepen in Europe’s largest economy: German business expectations, as measured by the Ifo Business Climate index, fell for a fifth straight month in December as the services sector was hit by the latest wave of Covid-19. The main index, which incorporates current conditions, fell to its lowest since March.

There were, however, signs of a possible turn for the better. German producer prices rose by only 0.8% in November, the smallest rise in eight months, while car sales in both Germany and around Europe picked up from October’s disaster, suggesting that the worst of the industry’s supply chain problems may be behind it.

Eurozone inflation also turned out weaker in month-on-month terms than expected: the core rate was flat while the headline rate rose ‘only’ 0.4%, due largely to surging energy prices.

5. Oil continues to suffer from demand fears

Crude oil prices fell back, on concerns that spreading restrictions on mobility and rising fear of infection will hurt demand in the near future.

By 6:30 AM ET, U.S. crude futures were down 1.8% at $71.09 a barrel, while Brent crude was down 1.7% at $73.72 a barrel, unimpressed by a forecast from Goldman Sachs that prices could hit $100 in the new year as global demand rebounds a new all-time high.

Elsewhere, the extent to which the world economy still relies on dirty fossil fuels was spelled out harshly by the International Energy Agency, which noted that the amount of coal burned to produce electricity this year reached a new all-time high, due largely to output in China and India.