Markets regain some optimism

The equity markets rebounded sharply and long rates rose yesterday, mainly on the confirmation of good news about the Omicron variant, which is proving to be very contagious for the time being but much less dangerous than the Delta variant. The negative economic impact on the end of the year and probably the beginning of next year cannot be avoided, but it could be rather short-lived.

The second supportive factor came from China where, to counter the effects of the property crisis, the central bank lowered the reserve ratio for banks, while the government is lifting restrictions to stop property speculation. There are concerns that Evergrande’s likely imminent default is causing concern and a price collapse must be avoided. Chinese trade figures released this morning were also excellent with exports up 22% yoy and imports accelerating (+31.7% yoy) largely due to a rebound in energy imports following the power generation problems.

A pleasant surprise was the 2.8% m/m rise in German industrial production in October, due in particular to the automotive sector. But we should not forget that orders fell heavily in parallel (-6.9%) and that the trend remains clearly negative as shown in this chart.

Some interesting economic reports today (ZEW survey, revised Eurozone national accounts, US trade balance), but no key market mover.