MNI ASIA OPEN - World Wary of Omicron

GLOBAL

COVID (Bloomberg): WHO Says Newly Identified Covid Strain Is Variant of Concern

The World Health Organization said that a strain of coronavirus recently discovered by South African researchers is a variant of concern, posing a threat that could confound countries' efforts to slow the spread of Covid-19.

The WHO assigned the Greek letter omicron to the variant, which had been known as B.1.1.529, following a meeting by a panel of experts Friday to discuss the strain.

In South Africa, "this variant has been detected at faster rates than previous surges in infection, suggesting that this variant may have a growth advantage," the WHO said Friday.

AMERICAS

US (MNI): New US Consumption Gauge To Include Unpaid Work, Housing
The U.S. Bureau of Labor Statistics will incorporate estimates of the value of unpaid household work and home ownership into a new measure of consumption, aiming for a more comprehensive view of living standards at a time when policymakers are increasingly concerned with addressing inequality, BLS senior economist Thesia Garner told MNI.

EUROPE

UK (MNI) BOE's Pill-Need Fresh Proof Not To Hike
Bank of England Chief Economist Huw Pill said that the burden of proof had shifted and he needed to see evidence for not tightening policy rather than for tightening. "In September I was still seeking data to confirm my assessment of the strength of the post-pandemic recovery and accumulation of inflationary pressures, now I scan incoming information for challenges to that view," he said, adding that the post pandemic recovery was well-established.

SWEDEN (MNI): Riksbank Should Exit Bond Markets Fast-Official
The chief economist of Sweden's Financial Supervisory Authority told MNI that the Riksbank's plans to unwind its asset purchases are "a small step in the right direction" and that it should quite rapidly exit bond markets already seeing a "frenzy" of risk-taking in some sectors.

ASIA-PAC

CHINA (MNI) PBOC Would Curb One-Way Bets On Yuan-Guan Tao
The People's Bank of China would take measures to curb any one-way market bets on the yuan, but it seems likely that the current strength of the currency will moderate in the new year as export growth slows and the Fed tightens monetary policy, a former senior official at the country's foreign exchange administration told MNI.

Regulators should also further loosen controls on overseas portfolio investment by Chinese financial institutions, to offset the surging trade surplus which has helped push the yuan up over 10% since May 2020, Guan Tao, a former Director General of Balance of Payments at the State Administration of Foreign Exchange, said in an interview. Domestic demand for yuan could strengthen towards the end of the year, he said.

DATA

MNI: Canada Apr-Sept Budget Deficit CAD68.6B Vs Prior CAD198B
Canada's budget deficit shrank to CAD68.6 billion between April and September from CAD198 billion in the year-ago period as the economy's reopening boosted revenue and the government moved to scale back pandemic relief payouts.

EGBs-GILTS CASH CLOSE: Massive Rally On New Covid Variant

Friday's session was dominated by fears over a new Covid variant which prompted one of the biggest risk-off moves since the beginning of the pandemic, reminiscent of March 2020.

• The EU and UK (among others) banned flights to southern Africa, with the EU disease control agency naming B.1.1.529 a "variant of concern", and the WHO expected to do likewise. European stocks saw their biggest selloff of the year, with oil prices falling 10+%.
• UK and German yields fell sharply, with Gilts outperforming.
• While it was a bull flattening move, markets continued to price out BoE (and to a lesser extent, ECB) rate hike prospects at the short end.
• Periphery EGBs largely held their ground, with spreads widening only slightly.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.8bps at -0.756%, 5-Yr is down 6.9bps at -0.64%, 10-Yr is down 8.4bps at -0.335%, and 30-Yr is down 7.3bps at 0.02%.
• UK: The 2-Yr yield is down 10.1bps at 0.472%, 5-Yr is down 12bps at 0.617%, 10-Yr is down 14.4bps at 0.825%, and 30-Yr is down 12.5bps at 0.927%.
• Italian BTP spread up 0.3bps at 130.9bps / Greek up 3.5bps at 163.7bps

FOREX: Havens Surge as WHO Dub New Variant 'Omicron'

• Haven FX surged Friday, with JPY and CHF outstripping all others in G10 as South Africa released further details of a more transmissible, possibly vaccine-dodging COVID variant that's been dubbed Omicron. USD/JPY slid sharply, falling persistently through the Asia, European and US session to touch new lows of 113.05 just after the close. This put the pair just below the 50-dma at 113.08 which forms first material support and markets will be watching at the close.
• CHF similarly rallied, putting EUR/CHF at fresh multi-year lows - last seen in 2015 - but this belies a session in which the EUR generally held up well.
• EUR/USD rallied, gaining close to a point as recent market trends reversed: yields traded lower with curves flatter and equities shed much of their recent strength.
• With havens trading solidly, commodity-tied currencies bore the brunt, putting AUD, CAD, NOK and NZD among the session's poorest performers.
• Focus in the coming week turns to nonfarm payrolls, with markets currently expecting another month of a half million in job gains, pressing the unemployment rate lower to 4.5%.