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To panic or not to panic:

That is the question

After Friday’s Covid consternation, people in high places spent Monday closing their borders, demanding stepped-up vaccination efforts, warning people to wear masks, reassuring them that Christmas was still on the cards or a combination of the above. The upshot was another good day for the safe-havens and a bad one for commodity-related currencies.

Washington was not quite of one mind in its admonishments. From the White House, President Biden (USD) and his team sent a calming message. They said the emergence of the Omicron variant is a “cause for concern, not a cause for panic”. The administration nevertheless imposed travel restrictions on arrivals from eight African countries.

Almost at the same time, Federal Reserve Chairman Jerome Powell (USD) and Treasury Secretary Janet Yellen published the speeches they will deliver today to the Senate Banking Committee. For Mr Powell “the recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation”. Ms Yellen says “The progress of our economic recovery can’t be separated from our progress against the pandemic”.

 

Inflation

Unsurprisingly, neither Mr Powell nor Ms Yellen was in any hurry to specify what impact this new Covid situation will have on US monetary policy, but it is probably safe to say it will not give added urgency to the move towards higher interest rates. Accelerating inflation rates might do so though.

Consumer price index numbers from Europe (EUR) on Monday might not be directly relevant to the Fed’s policy thinking, but they are symptomatic of a global upward pressure on prices. Yesterday morning’s provisional 5.6% headline rate from Spain (EUR) and Germany’s 6% were both 29-year highs. Today’s pan-Eurozone figure is expected to be lower than those at 3.7%.

In Britain (GBP), the Bank of England’s money and credit monthly showed a sharp decline in mortgage approvals in October. The number of approvals hit a 16-month low after the “distortive effect” of the stamp duty holiday ended. In the Eurozone (EUR), the EC confidence measures were mostly softer in November, but not by much. Economic sentiment eased, while employment expectations improved.

 

Janet and Jay

The main event today is the attendance at the US Senate Banking Committee of the Treasury Secretary and the Federal Reserve Chairman (USD). Although their speeches have already been released, the subsequent Q&A could be important.

Ahead of that there are European numbers (EUR) for French and Italian inflation, Spanish retail sales, German employment and Italian gross domestic product. Most importantly, the provisional Eurozone CPI numbers come out at 10:00h. They are unlikely to alter the expectation of continued interest rate prevarication by the European Central Bank.

In North America after lunch, Canada (CAD) reports on third quarter GDP, followed by US house prices (USD), the Conference Board’s consumer confidence measure and the Chicago purchasing managers’ index. Finalised PMIs tonight come from Australia (AUD), Japan (JPY) and China (CNY).

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