THE DAILY NEWS

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REUTERS

"'Hawkish' Powell testimony dents rally"


By Karen Pierog

November 30, 2021

CHICAGO, Nov 30 (Reuters) - Testimony by Federal Reserve Chair Jerome Powell on Tuesday struck a hawkish chord in the U.S. Treasury market, pushing up shorter-term yields, which had fallen earlier in the session as part of an across-the-curve rally sparked by concerns over the Omicron coronavirus variant.

Powell told a U.S. Senate committee the term "transitory" to characterize inflation should probably be retired.

He also said the Fed should consider accelerating the tapering of its bond purchases at its upcoming December meeting.

The benchmark 10-year note yield, which fell to its lowest level since Sept. 24 at 1.412%, was last down 8.5 basis points at 1.4443%.

The 30-year yield, which dropped to its lowest level since late January at 1.776%, was last 8.5 basis points lower at 1.7951%.

Yields move inversely to prices.

The shorter end of the curve reversed course and rose with the two-year yield, which reflects short-term interest rate expectations, last up 5.1 basis points at 0.5611%.

A closely watched part of the curve that measures the gap between yields on two- and 10-year Treasury notes flattened, with the spread falling to as low as 87.80 basis points.

"Powell came off as much more hawkish than many were assuming given the variant risk," said Ben Jeffery, an interest rate strategist at BMO Capital Markets in New York, adding that the market was thinking "a sooner end to tapering might imply a sooner liftoff for rate hikes."

Futures on the federal funds rate, which track short-term interest rate expectations, on Tuesday priced in an 86% chance of a quarter-point tightening by the Fed by June, up from 74% on Monday, with investors fully pricing in that rate hike by July.

John Canavan, lead analyst at Oxford Economics in New York, said yields on the shorter end of the curve rose on heightened interest rate-hike expectations, while long-end yields stayed lower due to curve flattening trades, a risk-off sentiment that sent stocks down, and demand from month-end portfolio rebalancing.

"Fed Chair Powell let us know that despite any concerns they have about the variant, it's not enough to get them to change the trajectory of their policy until we see some actual significant economic impacts from the variant," Canavan said.

Earlier in the session, yields across the curve tumbled after Moderna's CEO told the Financial Times that existing vaccines would likely be less effective against the new variant and it would be a risk to completely shift production to an Omicron-targeted dose while other variants remained in circulation.

The five-year note and 30-year bond yield curve also flattened.

The gap between the two was last 7 basis points narrower at 63.30 basis points.

The five-year breakeven inflation rate tumbled to a one-month low of 2.79%.

Reporting by Karen Pierog and Tom Westbrook; additional reporting by Dhara Ranasinghe, Yoruk Bahceli and Gertrude Chavez-Dreyfuss; Editing by Barbara Lewis and Leslie Adler

https://www.reuters.com/markets/us/yiel ... 021-11-30/
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REUTERS

"Wall St closes lower as taper acceleration worries pile onto virus angst"


By Devik Jain and Ambar Warrick, Sinéad Carew

November 30, 2021

Summary

* Communications services, utilities lead sector declines

* Technology sector loses least with help from Apple rally

* Fed's Powell floats accelerated bond-buying taper

* U.S. consumer confidence ebbs in November

* Indexes down: Dow 1.86%, S&P 1.90%, Nasdaq 1.55%


Nov 30 (Reuters) - Wall Street's main indexes closed lower on Tuesday after Federal Reserve Chair Jerome Powell signaled that the U.S. central bank would consider speeding up its withdrawal of bond purchases as inflation risks increase, piling pressure onto a market already nervous about the latest COVID-19 variant.

In a testimony before the Senate Banking Committee, Powell indicated that he no longer considers high inflation as "transitory" and that the Fed would revisit the timeline for scaling back its bond buying program at its next meeting in two weeks.

"Powell's comments threw a monkey in the wrench in market thinking in terms of potential taper timing."

"You're seeing as a result of that, risk-off across the board," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

"You also have to factor in the Omicron variant concerns."

"You can argue whether they're more headline risk or reality risk but regardless, it's having a significant impact on oil, and everything that's tied to economic growth."

Powell's comments also prompted speculation among some investors about a potential acceleration in interest rate hikes.

"The principal contributor to the decline in stock prices today is the Powell commentary, regarding the upcoming Fed meeting, about accelerating the tapering of their bond buying program, which obviously leads to the prospect that rate hikes come sooner next year," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

"That somewhat hawkish shift in tone caught the market flatfooted," Luschini said.

Meanwhile, the market was also left waiting for information about how dangerous the Omicron variant might be, the degree to which current vaccinations could offer protection and the additional restrictions governments might have to impose that could hurt the economy, Luschini said.

The Dow Jones Industrial Average fell 652.22 points, or 1.86%, to 34,483.72, the S&P 500 lost 88.27 points, or 1.90%, to 4,567 and the Nasdaq Composite dropped 245.14 points, or 1.55%, to 15,537.69.

For the month, the S&P registered a decline of 0.8%, while the Dow dropped 3.7% and the Nasdaq eked out a 0.25% gain.

Only seven of the benchmark S&P 500 components gained ground on Tuesday.

For the day, all the 11 major S&P industry sectors fell with seven of those sectors falling more than 2%.

Communication services lead the losses with a 3% drop followed by Utilities' 2.9% drop.

As oil prices tumbled, energy were under pressure throughout the session, closing down 2.5%.

The top performer was information technology, falling just 0.96%, with help from Apple Inc, which boasted a recording closing high and a 3.2% gain for the day.

Tuesday's decline was a sharp reversal after Monday's rally in which stocks regained some ground they had lost on Friday when the market sold-off swiftly on news of the virus variant.

"The market is clearly in some treacherous waters right now."

"You've had two significant pullbacks out of the last three trading days."

"This is certainly shaking some of the complacent longs in the market," said Wedbush's James.

While the Food and Drug Administration said it hopes to have information about the effectiveness of current COVID-19 vaccines against Omicron, vaccine companies were divided.

BioNTech's chief executive said the vaccine his company supplies in partnership with Pfizer will likely offer strong protection from severe illness in variant cases.

But Moderna Inc's CEO told the Financial Times that COVID-19 shots are unlikely to be as effective against the new variant as they have been previously.

Moderna shares fell 4.4% while Regeneron Pharmaceuticals Inc lost 2.7% after it said its COVID-19 antibody treatment and other similar drugs could be less effective against Omicron.

Travel and leisure stocks slumped, with the S&P 1500 Hotels, Restaurant and Leisure indexes fell more than 2% while the S&P 1500 Airlines index lost 0.6%.

The small-cap Russell 2000 index fell 1.9%.

The virus uncertainty has triggered fresh alarm at a time when supply chain logjams are weighing on economic recovery and central banks globally are contemplating a return to pre-pandemic monetary policy to tackle a surge in inflation.

Meanwhile, data showed U.S. consumer confidence slipped in November amid concerns about the rising cost of living and relentless COVID-19 pandemic.

Declining issues outnumbered advancing ones on the NYSE by a 3.82-to-1 ratio; on Nasdaq, a 2.40-to-1 ratio favored decliners.

The S&P 500 posted seven new 52-week highs and 45 new lows; the Nasdaq Composite recorded 28 new highs and 572 new lows.

Tuesday registered the highest volume trading session for U.S. exchanges since June with 16.13 billion shares changing hands, compared with the 11.12 billion moving average for the last 20 sessions.

Reporting by Devik Jain and Ambar Warrick in Bengaluru, Sinéad Carew in New York, Kevin Buckland in Ottawa; Editing by Marguerita Choy and Sriraj Kalluvila

https://www.reuters.com/markets/europe/ ... 021-11-30/
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REUTERS

"Rising inflation, relentless pandemic dampen U.S. consumer confidence"


By Lucia Mutikani

November 30, 2021

Summary

* Consumer confidence index falls in November

* Plans to buy homes, autos and major appliances decline

* House price growth decelerates in September


WASHINGTON, Nov 30 (Reuters) - U.S. consumer confidence dropped to a nine-month low in November amid worries about the rising cost of living and pandemic fatigue, but that did not change expectations for stronger economic growth this quarter.

The survey from the Conference Board on Tuesday showed consumers less enthusiastic about buying a house and big-ticket items such as motor vehicles and major household appliances over the next six months, likely because of shortages, which have boosted prices.

Consumers held strong views of the labor market, with the gap between those saying jobs are plentiful versus hard to get widening to a record high.

"This isn't a cause for concern as the relationship between spending and sentiment is loose, particularly in the short-run," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

"The good news is that consumers' assessment of the labor market improved in November, pointing toward further acceleration in job growth."

The Conference Board said its consumer confidence index fell to 109.5 this month, the lowest reading since February, from 111.6 in October.

The survey was conducted before the discovery of Omicron, a new COVID-19 variant.

Economists polled by Reuters had forecast the index falling to 111.0.

The measure, which places more emphasis on the labor market, is down from a peak of 128.9 in June.

The fall was less than that of the University of Michigan's survey of consumer sentiment, which hit a decade low.

Data this month have suggested that the economy was accelerating in the fourth quarter, with consumer spending surging in October and first-time applications for unemployment benefits at a 52-year low.

That led economists to raise their growth estimates for the fourth quarter to as high as an 8.6% annualized rate.

The economy grew at a 2.1% pace in the July-September quarter.

But the outlook for next year has been clouded by the Omicron variant.

While economists expect consumer confidence to decline further because of both the Delta and Omicron variants, they held onto their lofty growth forecasts for the current quarter.

"We currently expect the Omicron variant will have only a moderate negative impact on growth," said Nancy Vanden Houten, chief U.S. financial economist at Oxford Economics in New York.

"We still anticipate real GDP growth of 7.9% in fourth quarter and real consumer spending growth of 6.5%."

Stocks on Wall Street fell.

The dollar rose against a basket of currencies.

U.S. Treasury prices were mixed.

STRONG LABOR MARKET VIEWS

The Conference Board's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, jumped to a reading of 46.9 this month, the highest on record, from 43.8 in October.

This measure correlates to the unemployment rate from the Labor Department.

Combined with multi-decade low jobless claims, it raises hopes that employment growth accelerated further this month, though a shortage of workers remains a challenge.

There were 10.4 million job openings at the end of September.

Consumers' inflation expectations over the next 12 months surged to 7.6%, the highest since June 2008, from 7.1% last month.

Federal Reserve Chair Jerome Powell told lawmakers on Tuesday that the risk of higher inflation has increased and that it was appropriate to consider wrapping up bond purchases.

"These data provide further evidence that inflation expectations held by the general public are beginning to become unanchored," said Conrad DeQuadros, senior economic adviser at Brean Capital in New York.

Rising inflation is starting to influence consumers' spending decisions, the Conference Board survey suggested.


The share of consumers planning to buy a motor vehicle over the next six months was the smallest in the current series.

There was a break in the series in November 2010.

Motor vehicles are scarce because of a global semiconductor shortage.

Buying intentions for household appliances like television sets and refrigerators also fell, though intentions to purchase washing machines and clothes dryers rose.

Consumers were less inclined to buy a house over the next six months, reflecting a dearth of homes on the market.

Slowing demand could help to further cool house price inflation.

A second report on Tuesday showed the S&P CoreLogic Case-Shiller's 20 metropolitan area home price index rose 19.1% on a year-on-year basis in September after advancing 19.6% in August.

Signs that house price growth was moderating were evident in a third report from the Federal Housing Finance Agency that showed house prices rose 17.7% in the 12 months through September after powering ahead 18.5% in August.

"There is still low availability of for-sale homes, which continues to drive price growth, but the competition has faded and assuaged some of the bidding war intensity," said Selma Hepp, deputy chief economist at CoreLogic.

"Overall, home price growth is likely to continue slowing over the next year."

Reporting by Lucia Mutikani; Editing by Andrea Ricci and Lisa Shumaker

https://www.reuters.com/markets/us/us-c ... 021-11-30/
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RIGZONE

"Oil Falls as Omicron Threatens the U.S."


by Bloomberg | Julia Fanzeres

Wednesday, December 01, 2021

Oil fell in another volatile session with the first identified U.S. case of omicron jolting markets ahead of OPEC’s meeting with partners tomorrow to discuss output production.

West Texas Intermediate closed down 1%, erasing earlier gains of as much as 5%.

The omicron variant continued to worry investors with the first case detected in California and a doubling of South Africa’s Covid-19 cases from Tuesday.

Meanwhile, Federal Reserve Chair Jerome Powell reiterated that the bank must remain vigilant against inflation, which can be bearish for commodities if it takes steps to slow the pace of economic growth.

“It was inevitable that Omicron would make it to the US, but when you combine how quickly it appears to be spreading across South Africa, energy traders are getting more concerned about the short-term outlook,” said Ed Moya, senior market analyst at Oanda Corp.

“If omicron is much more transmissible we could see large parts of the country enter lockdown mode.”

The Organization of Petroleum Exporting Countries and its allies are meeting this week to consider its output policy amidst concerns that the new variant could slow global oil demand.

Some analysts expect OPEC+ to pause supply hikes in light of crude’s recent declines and worries that the omicron variant may dampen oil demand.

The U.S. frustrated OPEC+ last week by announcing a release from its strategic reserves.

There are indications that crude’s fundamentals have softened, reflected in a weakening price structure along the curve.

Yet Goldman Sachs Group Inc. said Tuesday that oil prices have now “far overshot“ the likely impact of the new virus variant.

OPEC+ has “erred on the side of caution since it began slowly boosting supplies,” said Stephen Brennock, an analyst at PVM Oil Associates.

A potential decision to shelve January’s planned increase and keep quotas flat “comports with its cautious approach.”

Prices:

WTI for January delivery fell 61 cents to settle at $65.57 a barrel in New York.

Brent for February settlement fell 36 cents to settle at $68.87 a barrel.

In Washington, Powell said for the second time in two days that the bank should consider speeding up how quickly they withdraw policy support.

A looming end to the taper could lead to an increase in interest rates to tamp economic growth and subsequently slow the recovery in commodity consumption.

The battery of recent headlines and uncertainty triggered by the new variant has caused oil’s volatility to soar.

WTI closed 13% lower on Friday before climbing on Monday and slumping again Tuesday.

Gauges of swings in both WTI and Brent are at their highest since May 2020.

Although oil remains in backwardation -- a bullish structure with near-term contracts trading above later-dated ones -- differentials have narrowed.

Brent’s prompt spread was 30 cents a barrel, down from $1.20 a week ago.

A U.S. government report showed that while overall crude inventories fell, stockpiles at the nation’s largest oil hub Cushing, Oklahoma, rose for the third straight week.

Gasoline inventories rose 4.03 million barrels, the biggest week-over-week build since June.

https://www.rigzone.com/news/wire/oil_f ... 2-article/
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CNBC

"CDC confirms first U.S. case of omicron Covid variant has been detected in California"


Spencer Kimball @SPENCEKIMBALL; Dawn Kopecki @/IN/DAWNKOPECKI @DAWNKOPECKINEWS @DAWN_KOPECKI; Jessica Bursztynsky @JBURSZ

PUBLISHED WED, DEC 1 2021

KEY POINTS

* The United States has confirmed its first case of the new, heavily mutated coronavirus variant called omicron, in Northern California.

* The variant, initially known as B.1.1.529, was first detected in South Africa, the World Health Organization said.

* Scientists will need a few weeks to determine how vaccines and treatments perform against the new variant.


The CDC said Wednesday it has confirmed the first U.S. case of the new, heavily mutated coronavirus variant called omicron, which was detected in Northern California.

White House chief medical advisor Dr. Anthony Fauci said the patient, who was fully vaccinated, had just returned to the San Francisco area Nov. 22 after traveling in South Africa and tested positive Nov. 29.


“The individual is self-quarantining, and all close contacts have been contacted and ... thus far, have tested negative,” he announced at a White House press briefing providing more details of the case.

“We feel good that this patient not only had mild symptoms, but actually the symptoms appear to be improving.”

The Centers for Disease Control and Prevention said genomic sequencing was initially conducted at the University of California, San Francisco, and the CDC confirmed the omicron variant.

The Dow Jones Industrial Average swung from a 520-point gain for the day to a loss of more than 461 points after the CDC confirmed the case.

California Gov. Gavin Newsom cautioned residents on Twitter, saying, “There’s no reason to panic — but we should remain vigilant."

"That means get vaccinated."

"Get boosted."

"Wear a mask indoors.”

At a press briefing Wednesday afternoon, Newsom said the patient is between 18 and 49 and had not received a booster shot because they were not six months out from their original vaccination course.

Newsom and local officials in San Francisco said they didn’t anticipate imposing new restrictions on residents in light of omicron.

“There’s more panic than information around this new variant,” Newsom said, adding that everyone needs to be more vigilant but that lockdowns are not under consideration.

“I think we can communicate so we can avoid any shutdowns, we can avoid shutting down our schools or businesses."

"None of us want to see that happen.”

Since South Africa first reported the variant to the World Health Organization a week ago, it’s been found in Canada, the U.K., Israel, Belgium, the Netherlands, Germany, Italy and Hong Kong, among other places.

World leaders are on high alert, worried the virus is already widely seeded across the globe.

The World Health Organization said Wednesday that omicron has been reported in at least 23 countries.

Fauci said over the weekend that the variant would inevitably arrive in the U.S.

On Sunday, two cases were identified in Ontario, Canada.

The variant, initially known as B.1.1.529, was first detected in Botswana and South Africa’s Gauteng province, where Johannesburg is located.

Moderna CEO Stephane Bancel warned Monday that omicron has already spread across the planet.

He pointed to flights that arrived in Amsterdam from South Africa on Friday in which 61 of 624 passengers tested positive for Covid.

Dutch health authorities said 14 of them are infected with the omicron strain.

Portuguese health authorities said Monday that 13 members and staff of a professional soccer team in Lisbon were infected with the variant after one of its players returned from a trip to South Africa.

“We also believe it is already present in most countries,” Bancel said.

“I believe most countries that have direct flights from South Africa in the last seven to 10 days already have cases in their country that they may not be aware of.”

The U.S. imposed a travel ban starting Monday for noncitizens who have traveled in South Africa and seven other nearby nations in the past 14 days.

The U.K. and the European Union have implemented similar travel restrictions.

President Joe Biden said Monday he is directing the Food and Drug Administration and the CDC to use the “fastest process available without cutting any corners” to approve potential vaccines that target omicron and get them on the market.

The current Covid vaccines are believed to provide at least some protection from the heavily mutated omicron strain, and booster shots “strengthen that protection significantly,” Biden said in a speech at the White House.

The WHO on Friday classified omicron as a “variant of concern,” meaning it is more contagious, more virulent or more skilled at evading public health measures, vaccines and therapeutics.

The variant contains more than 30 mutations to the spike protein that allows the virus to enter the body.

The new strain has roughly 50 mutations in total, including 10 alone to the receptor binding domain, the part of the virus that first comes in contact with cells.

Officials have warned that many of these mutations could lead to increased antibody resistance and transmissibility, which could limit the effectiveness of Covid vaccines.

“The molecular profile of the kinds of mutations that you see [in omicron] would suggest that it might be more transmissible and that it might elude some of the protection of vaccines,” Fauci said Wednesday.

“But we don’t know that now.”


He said we have to prepare for the possibility that immune protection from vaccines and recovery from Covid may be diminished against omicron, emphasizing the need for boosters.

Dr. Angelique Coetzee, chair of the South African Medical Association, described the symptoms linked to omicron as “extremely mild” so far.

However, Bancel warned that the symptoms reported in South Africa may not be a good predictor of the variant’s virulence since less than 5% of the population is over 60 and there are far fewer comorbidities than in the U.S. and Europe, where people tend to be older and sicker.

“I think today, it’s really impossible to know ... I don’t believe that what’s going to happen in the coming week or two in South Africa will be predicting to be full virulence of a virus,” Bancel said.

Drugmakers have responded quickly to the new variant.

Pfizer and BioNTech said they are investigating omicron and could adapt their vaccine if needed.

Johnson & Johnson said it was already testing its vaccine against the variant.

Moderna said it will test three booster candidates against omicron, including a higher dosage of its original Covid booster.

The company also said it will develop a booster dose specific to the variant.

Fauci said Americans heading into the holidays should still feel safe celebrating indoors with vaccinated family and friends.

“You can feel safe with not wearing a mask and having a dinner or having a reception,” he said.

“But when you are in a public congregate setting in which you do not know the status of the vaccination of the people involved, it is very prudent to wear a mask.”

— CNBC’s Robert Towey and Kevin Breuninger contributed to this report.

Data also provided by Reuters

https://www.cnbc.com/2021/12/01/us-conf ... ornia.html
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CNBC

"Treasury yields are flat with the Fed’s faster taper plans, omicron variant in focus"


Maggie Fitzgerald @MKMFITZGERALD Vicky McKeever @VMCKEEVERCNBC

PUBLISHED WED, DEC 1 2021

U.S. Treasury yields were steady on Wednesday, amid investor concerns around the omicron variant and the Federal Reserve’s plans to potentially taper faster than expected.

The yield on the benchmark 10-year Treasury note fell just 1 basis point to 1.424% by around 4:20 p.m. ET.

The yield on the 30-year Treasury bond dipped 2 basis points to 1.762%.

Yields move inversely to prices and 1 basis point is equal to 0.01%.

Yields rose earlier in the day on Wednesday.

U.S. health officials on Wednesday confirmed the country’s first case of the new, heavily mutated Covid omicron variant in California.

The patient has mild symptoms that appear to be improving, according to White House chief medical advisor Dr. Anthony Fauci.

Bond yields had a muted reaction to news of the omicron case.

The major averages reversed their gains and closed lower.

The Dow Jones Industrial Average lost more than 460 points on Wednesday.

“It’s not severe and everything that we’ve seen seems to suggest it’s not really a game-changer in terms of implementation of new restrictions or anything like that,” said Ben Jeffery, BMO rate strategist.

Investors continue to watch for developments on the new omicron Covid-19 variant, with uncertainty around its rate of transmissibility and fears that it could evade vaccines.

Meanwhile, monetary policy has also been in focus for investors.

Fed Chairman Jerome Powell indicated in a testimony in front of Congress on Tuesday that the central bank may quicken the pace of its asset tapering schedule.

Powell said that he thought the Fed could pull back its bond-buying program faster than the $15 billion-a-month schedule announced in November.

“I think that the taper need not be a disruptive event in markets."

"I don’t expect that it will be."

"It hasn’t been so far."

"We’ve telegraphed it,” Powell said during Congressional testimony on Wednesday.

On Wednesday, payroll services firm ADP reported 534,000 jobs added in November, above expectations of 506,000.

Elsewhere, the ISM Markit manufacturing PMI came in lower than expected, but the ISM version matched estimates.

A reading for construction spending in October rose slower than expected but saw positive revisions to help offset the miss.

—CNBC’s Hannah Miao contributed to this report.

https://www.cnbc.com/2021/12/01/us-bond ... cerns.html
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REUTERS

With inflation risks rising, Fed's Powell prepares for possible pivot"


By Jonnelle Marte and Lindsay Dunsmuir

December 1, 2021

NEW YORK, Dec 1 (Reuters) - The U.S. central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of next year as most forecasters currently expect, Federal Reserve Chair Jerome Powell said on Wednesday.

In his second day of testimony in Congress, Powell reiterated that he and fellow policymakers will consider at their upcoming meeting a faster wind-down to the Fed's bond-buying program, a move widely seen as opening the door to earlier interest rates hikes.

With very strong consumer demand colliding with persistent supply chain problems, the Fed may be nearing the time when it must choose between aiming for full employment and keeping inflation in check.

On Tuesday, Powell said he thinks it's likely that inflation will come down "meaningfully" in the second half of next year as supply chains get fixed, but "the risks of higher inflation have moved up."

"We have to use our policy to address the range of plausible outcomes, not just the most likely one," he told the U.S. House of Representatives Financial Services Committee.

As if to underscore those concerns, a survey published Wednesday by the Federal Reserve showed firms across the country are increasingly grappling with higher prices and scrambling to fill jobs amid labor shortages, though they are able in many cases to pass on higher costs to customers, with little resistance.

"Nearly all Districts reported robust wage growth," according to the Fed's Beige Book, an anecdotal survey of businesses in the Fed's 12 districts. read more

Soon after Powell's appearance in Congress alongside Treasury Secretary Janet Yellen, public health officials announced the first known U.S. case of a patient with the Omicron COVID-19 variant, suspected of being more infectious than prior strains of the coronavirus.

Though lawmakers asked Powell no questions about how the new variant might change the economic outlook or the Fed's policy response, New York Fed President John Williams told the New York Times in an interview published Wednesday that it could both slow economic activity and exacerbate inflationary pressures.

That daunting combination could add to the challenges Fed policymakers face as they calibrate their response to the good news from a strengthening economy, the bad news of a possible new COVID-19 surge, and inflation that is persisting longer and staying higher than expected.

Last month, the Fed began reducing its purchases of Treasuries and mortgage-backed securities from $120 billion per month at a pace that would put it on track to end purchases by mid-2022.

The program was introduced in early 2020 to help nurse the economy through the pandemic.

Powell repeated Tuesday that policymakers would discuss at their Dec. 14-15 meeting whether to end that program a few months earlier in light of the strength of the economy.

TENSION

Powell said the U.S. recovery is stronger than those of other major economies, thanks in part to more robust fiscal support.

U.S. consumer spending surged in October and first-time applications for unemployment benefits are at a 52-year low, leading economists to raise their GDP growth estimates for the fourth quarter.

Still, consumer confidence dropped to a nine-month low in November amid worries about the rising cost of living and pandemic fatigue.

The Omicron variant is also creating more uncertainty for households and businesses.

Powell said Fed officials are monitoring the evolving economic landscape and acknowledged they might face "tension" as they pursue the U.S. central bank's dual mandate of achieving maximum employment and price stability.

"We have to balance those two goals when they are in tension, as they are right now," Powell said.

"But I assure you we will use our tools to make sure that this high inflation we are experiencing does not become entrenched."

Powell noted that wages have been rising, particularly for low-wage workers, and said the Fed is tracking the increases.

"We have seen wages moving up significantly," Powell said.

"We don’t see them moving up at a troubling rate that would tend to spark higher inflation, but that’s something we’re watching very carefully."

Reporting by Jonnelle Marte and Lindsay Dunsmuir; Additional reporting by Ann Saphir and Lucia Mutikani Editing by Leslie Adler

https://www.reuters.com/world/us/feds-p ... 021-12-01/
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REUTERS

"TREASURIES-Yields pare gains after Omicron variant found in U.S."


By Karen Brettell

DECEMBER 1, 2021

NEW YORK, Dec 1 (Reuters) - Longer-dated U.S. Treasury yields were little changed after giving up earlier gains on Wednesday as the Omicron coronavirus variant was found in the United States, though short-dated yields stayed higher on chances that the U.S. Federal Reserve will speed up its bond purchase tapering.

The United States identified its first case of the new variant in a fully vaccinated traveler who had returned from South Africa on Nov. 22 and had mild symptoms.

It came after yields had bounced earlier in the day, following Fed Chair Jerome Powell's comments on Tuesday that U.S. central bankers in December will discuss whether to end their bond purchases a few months earlier than had been anticipated.

"Powell yesterday in his hawkish tilt removed a good deal of potential uncertainty in terms of coming Fed rhetoric as he basically confirmed that the hawkish shift that we've heard from other officials since the last FOMC remains intact," said Jonathan Cohn, head of rates trading strategy at Credit Suisse in New York.

High inflation, now running at more than twice the Fed's flexible target of 2% annually but which the central bank has for months characterized as "transitory," is only expected to ease in the second half of 2022, Powell said.

"I think it's probably a good time to retire that word."

"They are starting to discount the fact that inflation is transitory," said Tom di Galoma, managing director at Seaport Global Holdings in New York.

"They are probably going to drop the transitory comment from future releases and future testimony."

Powell repeated on Wednesday that with the U.S. economy growing strongly and supply-demand imbalances poised to persist in the near future, policymakers need to be ready to respond to the possibility that inflation may not recede in the second half of next year as expected.

New York Fed President John Williams also said the latest COVID-19 variant could extend some of the supply-chain challenges and shortages that have led to higher inflation.

Benchmark 10-year yields were little changed on the day at 1.434%, after earlier rising to 1.506%.

Two-year yields, which are highly sensitive to interest rate moves, jumped 4 basis points to 0.563%.

They are holding below a high of 0.687% reached on Nov. 23, which was the highest since March 2020.

The yield curve between two-year and 10-year notes was at 86 basis points.

It has flattened from 130 basis points in October as investors price more rate hikes into short- and intermediate-dated notes.

Longer-dated debt remains relatively in demand on expectations that the rate hikes will dampen inflation and growth longer-term.

Futures traders are almost fully pricing in a rate increase at the Fed's June 2022 meeting.

Treasuries showed little reaction to the ADP National Employment Report on Wednesday that showed private payrolls increased by 534,000 jobs last month.

The next major U.S. economic release will be Friday's jobs report for November.

The U.S. economy expanded at a modest-to-moderate pace in October and the first half of November while firms grappled with rising inflation and a scramble to fill jobs amid labor shortages, a survey conducted by the Fed showed on Wednesday.

Volatility is expected to stay high at least through year-end as the market struggles with low liquidity and uncertainty around the Fed's future rate path.

The ICE BofA MOVE Index, a measure of volatility in U.S. Treasuries, is trading at its highest level since March 2020.

Inflation expectations have also fallen as investors price in the greater likelihood of faster rate increases.

Breakeven rates on five-year Treasury Inflation-Protected Securities have fallen to 2.74%, from around 3.20% in mid-November.

(Editing by Mark Heinrich and Peter Graff)

https://www.reuters.com/article/usa-bon ... SL1N2SM2LY
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REUTERS

"Wall St turns red as Omicron reaches the United States"


By Devik Jain and Ambar Warrick, Sinéad Carew

December 1, 2021

Summary

* All three indexes breach key technical levels

* Defensive sectors outperform, Vix soars

* Salesforce falls on disappointing profit forecast

* Indexes fall: Dow 1.34%, S&P 1.18%, Nasdaq 2.83%


Dec 1 (Reuters) - Wall Street's major averages fell more than 1% on Wednesday after a morning rally faded as investor angst about the latest coronavirus variant soared with the first U.S. case confirmation while the market also digested Fed comments on inflation.

After having advanced as much as 1.9% by late morning, the S&P 500 gave up all its gains in the afternoon along with the Dow and Nasdaq, which fell the most on the day.

All three indexes breached key technical levels during the session.

Late in the day, the U.S. Centers for Disease Control said the country had detected its first case of the Omicron variant, which had infected a person who came from South Africa, where the variant was initially discovered.

Earlier on Wednesday, Federal Reserve Chair Jerome Powell said policymakers needed to be ready to respond to the possibility inflation may not recede in the second half of next year as expected.

Wall Street had already tumbled on Tuesday after Powell had surprised the market by signaling that the central bank would consider accelerating the withdrawal of its bond buying program at its December meeting amid a surge in inflation.

"The market's grappling with the twin concerns of the Omicron variant, which may or may not be able to evade the vaccine, and a more hawkish Powell than expected," said Chris Zaccarelli the chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.

Wall Street had tumbled sharply on Friday when investors first heard of the Omicron variant with health officials saying they were unsure how transmissible or dangerous the variant is and how much protection existing vaccines provide.

On Monday, the market rebounded sharply as investors looked for bargains after the sell-off, only to fall again on Tuesday following the Powell comments.

"We tried to buy the dip again (on Wednesday) but news that Omicron is here already has taken some of the wind out of the sails of the bulls," said Zaccarelli.

The Dow Jones Industrial Average fell 461.68 points, or 1.34%, to 34,022.04, the S&P 500 lost 53.96 points, or 1.18%, to 4,513.04 and the Nasdaq Composite dropped 283.64 points, or 1.83%, to 15,254.05.

The Dow closed below its 200-day moving average for first time since July 13, 2020, while the S&P finished below its 50-day moving average for first time since Oct. 13 and Nasdaq ended a session under its 50-day moving average for first time since Oct. 14.

While all of the 11 major S&P sectors were gaining into the early afternoon, all but one sector ended the day in the red.

The communications services sector was the biggest loser with a 1.99% drop and consumer discretionary was not far behind with a 1.86% dip.

The sole advancing sector was utilities, a more defensive sector which tends to draw interest when investors are fleeing from riskier bets.

The next best performers on the day were also defensive sectors with the healthcare ending down 0.2% and consumer staples falling 0.4%.

The CBOE market volatility index, often referred to as Wall Street's fear gauge, closed up 14.5 points at 31.12 after earlier rising to 32.61, its highest level since February.

The economically sensitive Russell 2000 index of small cap companies did an almost complete about-face, closing down 2.3% after rising as much as 2.5% at its late morning peak.

The World Health Organization said it expected to have more information on the transmissibility of the Omicron variant within days, and that the agency believes the existing COVID-19 vaccines will work against the variant.

Lauren Goodwin, economist and portfolio strategist at New York Life Investments, said it was not surprising to see volatility as investors digest uncertainties including the lack of information on Omicron and the latest signals from the Fed.

However Goodwin also pointed at Wednesday's positive economic data, which was "reminding investors that the economic and corporate backdrop for this market is really strong."

U.S. manufacturing activity picked up in November amid strong demand for goods.

Salesforce.com Inc forecast current-quarter profit below estimates as it faces stiff competition from rivals including Microsoft, sending its shares down 11.7%.

Declining issues outnumbered advancing ones on the NYSE by a 2.26-to-1 ratio; on Nasdaq, a 2.96-to-1 ratio favored decliners.

The S&P 500 posted 13 new 52-week highs and 42 new lows; the Nasdaq Composite recorded 37 new highs and 541 new lows.

Trading volume was elevated with 14.2 billion shares changing hands on U.S. exchanges, compared with the 11.3 billion average for the last 20 sessions.

Reporting by Devik Jain, Ambar Warrick and Medha Singh in Bengaluru, Sinéad Carew in New York; Editing by Marguerita Choy and Maju Samuel

https://www.reuters.com/markets/europe/ ... 021-12-01/
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REUTERS

"U.S. economy gaining steam as manufacturing forges ahead; shortages still a constraint"


By Lucia Mutikani

December 1, 2021

Summary

* Manufacturing activity picks up in November

* Signs supply constraints easing in a few industries

* Private payrolls increase 534,000


WASHINGTON, Dec 1 (Reuters) - U.S. manufacturing activity picked up in November amid strong demand for goods, keeping inflation high as factories continued to struggle with pandemic-related shortages of raw materials.

Signs that the economy was gathering momentum halfway through the fourth quarter were underscored by other data on Wednesday showing private employers maintained a strong pace of hiring last month.

But there are fears that the Omicron variant of COVID-19 could hurt demand for services as well as keep the unemployed at home, and hold back job growth and the economy.

"Manufacturing should continue to contribute positively to GDP growth over the next year as businesses replenish inventories and supply-chain issues improve," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

"There are risks, including the potential for businesses overbooking orders now and the Omicron variant magnifying price and supply chain issues."

The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 61.1 last month from 60.8 in October.

A reading above 50 indicates expansion in manufacturing, which accounts for 12% of the U.S. economy.

Economists polled by Reuters had forecast the index rising to 61.0.

"The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement," said Timothy Fiore, ISM chair of the manufacturing business survey committee.

Global economies' simultaneous recovery from the COVID-19 pandemic, fueled by trillions of dollars in relief money from governments, has strained supply chains, leaving factories waiting longer to receive raw materials.

The Federal Reserve's Beige Book on Wednesday described economic activity as growing at "a modest to moderate pace" during October and early November, but noted that "growth was constrained by supply chain disruptions and labor shortages."

All of the six largest manufacturing industries in the ISM survey, including computer and electronic products as well as transportation equipment, reported moderate to strong growth.

Makers of computer and electronic products said "international component shortages continue to cause delays in completing customer orders."

Transport equipment manufacturers reported "large volume drops due to chip shortage."

Furniture producers said "business is strong but meeting customer demand is difficult due to a shortage of raw materials and labor."

But there are some glimmers of hope.

Prices for steel plate and hot-rolled coil appear to be nearing a plateau, according to manufacturers of fabricated metal products.

Supply of plastic resins is improving, accounts from electrical equipment, appliances and components, as well as plastics and rubber products manufacturers suggested.

The ISM survey's measure of supplier deliveries slipped to 72.2 from 75.6 in October.

A reading above 50% indicates slower deliveries.

The long delivery times kept inflation at the factory gate bubbling.

The survey's measure of prices paid by manufacturers fell to a still-high 82.4 from 85.7 in October.

Factories are easily passing the increased production costs to consumers and there are no signs yet of resistance.

Fed Chair Jerome Powell told lawmakers on Tuesday that "the risk of higher inflation has increased," adding that the U.S. central bank should consider accelerating the pace of winding down its large-scale bond purchases at its next policy meeting in two weeks.

The Fed's preferred inflation measure surged by the most in nearly 31 years on an annual basis in October.

Stocks on Wall Street rebounded after Tuesday's sell-off.

The dollar was steady against a basket of currencies.

Prices for longer-dated U.S. Treasury prices rose.

STRONG ORDERS

The ISM survey's forward-looking new orders sub-index climbed to 61.5 last month from 59.8 in October.

Customer inventories remained depressed.

With demand robust, factories hired more workers.

A measure of manufacturing employment rose to a seven-month high.

Strengthening labor market conditions were reinforced by the ADP National employment report on Wednesday showing private payrolls increased by 534,000 jobs in November after rising 570,000 in October.

That was broadly in line with expectations.

This, combined with consumers' robust perceptions of the labor market last month suggest job growth accelerated further in November.

First-time applications for unemployment benefits declined between mid-October and mid-November.

But a shortage of workers caused by the pandemic is hindering faster job growth.

There were 10.4 million job openings at the end of September.

Workers have remained home even as companies have been boosting wages, school reopened for in-person learning and generous federal government-funded benefits ended.

"Overall, the risk remains that renewed health concerns will keep workers, especially those with caregiving responsibilities, from returning to the labor force, preventing a return to pre-pandemic strength," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.

According to a Reuters survey of economists nonfarm payrolls probably increased by 550,000 jobs in November.

The economy created 531,000 jobs in October.

The Labor Department is scheduled to publish its closely watched employment report for November on Friday.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

https://www.reuters.com/markets/us/us-p ... 021-12-01/
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