MARKET WRAPS

Stocks:

European stocks rose, resuming the seesaw action that has become the signature of markets since the emergence of the Omicron Covid-19 variant.

Investors have grappled with a mix of concerns heading into the end of the year. The rise in Omicron cases has spurred concerns about global growth and whether it will prolong the global supply-chain disruptions that have added to inflation. However, signs that vaccine boosters offer protection against Omicron have bolstered hopes that its impact on growth can be mitigated.

Meantime, hopes were raised that a version of the U.S.'s $2 trillion spending package could still be passed, after Senate Majority Leader Chuck Schumer said Democrats would take up the legislation early next year, despite opposition from Sen. Joe Manchin.

"It seems we're continuing to get this risk-on, risk-off environment. Investors are kind of torn," said Louise Dudley, an equities portfolio manager at Federated Hermes. Despite heightened uncertainty, investors are still incentivized to buy stocks, as government bonds don't offer enticing yields, she said.

Shares on the move: Rockhopper Exploration shares rose after it said that a tribunal in its arbitration against the Italian government has again rejected Italy's intra-European Union jurisdictional challenge.

The London-listed oil-and-gas exploration group said Italy previously made a request and the tribunal agreed to admit a recent ruling by the European Court of Justice related to intra-EU Energy Charter Treaty disputes.

Data in focus: Germany's economy is being affected by supply-chain disruptions along with demand-supply mismatch for the automobile industry due to the global chip shortage, GlobalData said.

The data company has revised down its 2022 real GDP growth forecast for the country to 4.4%, a downward revision of 0.1 percentage point due to concerns over the Omicron variant.

"Tightening of measures to combat Covid-19 along with slow industrial growth are expected to retard economic growth prospects in the short-term," GlobalData's economic research analyst Gargi Rao said.

Supply-chain disruptions in raw materials along with semiconductor chip shortages will continue to hamper German manufacturing output in the coming quarter, Rao said.

Real-time indicators, as well as the December U.K. composite purchasing managers' index falling to its lowest level since February, provide the clearest signs yet that the Omicron coronavirus variant has set back economic recovery, Pantheon Macroeconomics said.

Driven by declines in consumer-services activity, Pantheon expects GDP will drop in December and January and cuts its forecast for U.K. GDP growth in the fourth quarter and 1Q to 0.6% and 0.0% respectively, from 1.0% and 0.8%.

Pantheon expects a 0.6% on-month drop in December, followed by a further 0.3% drop in January, but that assumes no additional restrictions are imposed, the economic-research firm says.

U.S. Markets:

Stock futures were pointed to a rebound for Wall Street, on the heels of a sharp selloff, with investors driven by hopes countries have enough in their arsenal to fight rising Covid cases.

Monday's volatile action saw the S&P 500 post its biggest three-day percent slide since Sept. 30 and the Nasdaq's worst such drop since May 12. Markets were hit first by surrounding fears over rising COVID-19 cases from the omicron variant.

The Biden administration is due to announce a omicron-fighting plan on Tuesday, with 500 million free at-home COVID-19 testing kits due to be distributed to Americans, along with the deployment of federal emergency assistance teams to six hard-hit states and other measures, according to a report in The Wall Street Journal.

Some are keeping an eye on Biden himself, after he tested negative for COVID-19 on Monday, following close contact three days earlier with an aide who tested positive, the White House said. He will test again on Wednesday, and carry on with his normal schedule.

Traders checking out early for the holidays, leaving less liquidity and exaggerating some market moves, are also a hurdle for those trying to navigate a shortened week of trading. Markets will close on Friday, Christmas Eve.

The only data on tap for Tuesday are the third-quarter current-account deficit.

Forex:

The dollar fell slightly as traders take profits on long positions that bet on the currency rising, Oanda analyst Jeffrey Halley said.

Some profit taking of the dollar's recent rally has set in but declines will be limited as markets remain vulnerable to headlines on the Omicron coronavirus variant, which has driven investors towards safe havens, he said.

"I expect the chop-fest to continue, with a move through either 96.00 or 97.00 indicating the [DXY dollar index's] next directional move."

The dollar could edge lower heading into the year-end as investors take some profit on recent bets on further gains in the currency, though it might recover again in the new year, MUFG said.

"The U.S. dollar has continued to hold up well though so far even though there is a risk that popular long positions could be pared back heading into year-end as positions are lightened to take risk off the table," MUFG currency analyst Lee Hardman said.

MUFG's seasonal analysis shows the dollar tends to underperform in December, before reversing losses in January, he said.

Bitcoin-the world's largest cryptocurrency by market value-gained 3.4% to $48,623.

The Turkish lira recovers versus the dollar after President Recep Tayyip Erdogan announced measures to curb the currency's slide. Late Monday Erdogan unveiled a scheme aimed at encouraging Turkish residents to hold their savings in liras rather than dollars.

That eased pressure on the lira, which recovered strongly after hitting an all-time low on Monday after Erdogan on Sunday cited Islam as a reason for not raising interest rates.

"We are quite doubtful this is the end to the current lira story," Danske Bank analyst Lars Sparreso Lykke Merklin said.

Read what the analysts are saying here .

Bonds:

The clarity provided by the European Central Bank regarding the asset purchase reduction in 2022 is a surprise, Ostrum Asset Management said.

"A surprise is the visibility provided, as the ECB has accurately described the path of QE throughout 2022,"

The ECB confirmed the scheduled end of the Pandemic Emergency Purchase Programme at end-March, and to help offset this, it will increase the regular Asset Purchase Programme in 2Q and 3Q, though this will still mean a reduction in overall purchases.

The ECB purchases will absorb eurozone countries' net bond issuance in 2022, Ostrum AM says, adding that the central bank will limit tensions in sovereign rates and spreads.

Eurozone government bond yields are expected to rise in 2022, with the 10-year Bund yield likely ending next year in positive territory, Generali Investments said.

The combination of increasing U.S. yields, an expected adjustment of long-term key rate expectations, less support from the ECB, and an economy still growing above potential will contribute to a rise in long-term yields, senior bond strategist Florian Spaete said.

Forwards imply a slight increase of 10-year Bund yields to -0.25%, but Generali Investments forecast the end-2022 level at 0.10%, he said.

Eurozone noncore government bond yield spreads are still rather low by historical standards and they look vulnerable to a shift in the ECB's narrative next year, Florian Spaete, senior bond strategist at Generali Investments, said.

"The tighter central bank liquidity will dampen the current carry-friendly low volatility environment," while an expected increase in core yields will reduce the search for yield, he said.

However, solid growth, still accommodative monetary policy and the support from the NextGenerationEU program will prevent a disorderly increase in risk premiums, he said, forecasting moderate spread widening in 2022.

Presidential elections in Italy and France have the potential to have a lasting impact on the current calm political environment, Spaete said, expecting it to become bumpier in 2022.

Commodities:

Oil rose with both benchmarks paring some of Monday's losses that came amid increasing worries about the impact of the Omicron variant.

Arresting that decline is supply disruption in Libya, where armed groups have shut down the country's largest oil field at Sharara, which contributes 300,000 barrels a day, DNB Markets' Helge Andre Martinsen said.

That has forced the country's national oil company to declare force majeure on two important terminals. With a presidential election around the corner, the risk of further disruption is growing, the analyst added.

European gas prices were up 7.5% having soared to record highs which DNB Markets's Helge Andre Martinsen said put it at an equivalent of more than $300 a barrel. That latest rally comes as Russian flows to Europe continue to dwindle.

According to Reuters, flows through the Yamal pipeline between Russia and Germany via Poland that normally move from East to West actually reversed earlier Tuesday.

On top of this, wind output in Germany is at its lowest level in five weeks, boosting demand for gas even further. In short, "the combination of low wind power and very restricted flow of Russian gas is leading to soaring gas prices in Europe," Martinsen said.

London three-month copper futures are up after worries over the Omicron variant weighed on prices during Monday.

Equities and commodities markets all appear to be staging a relief rally with a weaker dollar also helping dollar-denominated commodities become less expensive for other currency holders.

Still, "low liquidity and volatility combined have intensified market weakness across the board, and further tightening of lockdown restrictions should add to the weakness during the Christmas period [in copper]," Sucden Financial's Daria Efanova said.

Meanwhile, the weaker dollar means London gold prices were up.

EMEA HEADLINES

German Consumer Confidence Is Expected to Fall in January Due to Inflation and Omicron Fears

Consumer sentiment in Germany is expected to deteriorate noticeably in January, due to rising inflation and a surge in coronavirus cases, according to data released by market-research group GfK on Tuesday.

GfK's forward-looking consumer sentiment index forecasts confidence among households falling to minus 6.8 in January from a revised figure of minus 1.8 points in December. Economists polled by The Wall Street Journal anticipated a drop to minus 2.5 points.

Qatar Airways Sues Airbus in A350 Surface Defect Dispute

Qatar Airways said late Monday it has filed legal proceedings against European plane maker Airbus SE related to fuselage surface degradation on some of its A350 widebody jets.

Qatar Airways said it has so far grounded 21 A350 jets because of the issue, which couldn't be solved through discussions between the two companies.

Turkey's Borrowing Costs Soar as Crisis Enters New Phase

ISTANBUL-Turkey's financial strains worsened and the country's business community went into revolt, signs that the currency crisis dogging the economy was heading into a dangerous new phase.

The lira plunged nearly 9% on Monday to more 17.86 against the dollar, a record low, after President Recep Tayyip Erdogan vowed to cut interest rates further in defiance of business leaders who have spoken out against the government's monetary policy in recent days.

Novavax's Covid-19 Vaccine Approved by EU

Novavax Inc.'s Covid-19 vaccine was recommended for use by the European Medicines Agency, marking the first endorsement by a major regulator of a shot that uses an established technology.

A scientific committee said the Novavax shot, dubbed Nuvaxovid, was safe and effective. The European Commission almost immediately granted conditional marketing authorization in the European Union. The approval applies to adults only.

Davos Economic Forum Is Postponed as Omicron Leads to Further Cancellations, Travel Bans

Israel is set to bar its citizens from traveling to the U.S. and Canada because of the spread of the Omicron variant-as the World Economic Forum said it would postpone next month's annual meeting in the Swiss mountain resort of Davos for the second successive year.

As Omicron continues to drive new restrictions on travel and social interactions, Israel's government said it would place the U.S. and Canada along with eight other nations on a growing list of countries to which its citizens are barred from traveling.

Egyptian Court Sentences Three Activists Despite International Pressure

CAIRO-An Egyptian court sentenced three prominent activists charged with joining a terrorist group and spreading false news to up to five years in prison, defying international pressure to release them in a case that has drawn scrutiny of the country's human-rights record.

A state security court in Cairo on Monday sentenced political dissident Alaa Abdel-Fattah to five years in prison, according to his family and state media. Rights lawyer Mohamed el-Baqer and blogger Mohamed Ibrahim were sentenced to four years each on the same charges.

GLOBAL NEWS

Booming U.S. Economy Ripples World-Wide, Straining Supply Chains and Driving Up Prices

FRANKFURT-A booming U.S. economy is rippling around the world, sucking in imports, straining global supply chains and pushing up prices.

The force of the American expansion is also inducing overseas companies to invest in the U.S., betting that the growth is still accelerating and will outpace other major economies.

Wall Street Had a Red-Hot Year, But Can It Last?

Wall Street has enjoyed a second straight year of feverish revenue growth. As 2022 approaches, however, big banks face a major challenge in maintaining that torrid pace of business.

A white-hot market for deals, coupled with strong capital markets and steady demand for financial services from wealthy clients, have led to record results at large banks. At Goldman Sachs Group Inc., revenue reached $46.7 billion this year through Sept. 30 and Morgan Stanley booked $45.2 billion, both record highs. The final quarter of the year is expected to be strong for banks' revenue as well.

Davos Economic Forum Is Postponed as Omicron Leads to Further Cancellations, Travel Bans

Israel is set to bar its citizens from traveling to the U.S. and Canada because of the spread of the Omicron variant-as the World Economic Forum said it would postpone next month's annual meeting in the Swiss mountain resort of Davos for the second successive year.

As Omicron continues to drive new restrictions on travel and social interactions, Israel's government said it would place the U.S. and Canada along with eight other nations on a growing list of countries to which its citizens are barred from traveling.

U.S. Sets 55-Mile-a-Gallon Fuel-Efficiency Standard for 2026 Models

WASHINGTON-The Biden administration on Monday raised fuel-efficiency standards for passenger cars and light duty trucks, saying the new standards will reduce pollution and save consumers billions of dollars at the gas pump.

Auto makers must meet a fleetwide average of 55 miles a gallon for cars and light trucks by model year 2026, up from the 43 mpg standard set by the Trump administration for that year. The fleetwide mileage standard for the current 2021 model year is 40 mpg.

Schumer Plans Build Back Better Vote Next Year

WASHINGTON-Sen. Joe Manchin's opposition to the party's roughly $2 trillion education, healthcare and climate package left Democrats grasping for a new path forward Monday, with Senate Majority Leader Chuck Schumer saying that the Senate would vote on the bill early next year despite the pivotal lawmaker not being on board.

After broadcasting his opposition to the bill a day earlier, the West Virginia Democrat said Monday that lawmakers should start from square one to rebuild a potential package and criticized the White House for its handling of the talks. Mr. Manchin's position effectively killed the bill in its current form and put President Biden's economic agenda in jeopardy.

To Track Covid-19 Surges, Scientists Are Studying Sewage

Public-health experts traditionally track the spread of an infectious disease through clinical data such as test results, hospitalizations and deaths. As Covid-19 continues to spread, scientists are turning to an alternative measure: wastewater analysis. SARS-CoV-2, the virus that causes Covid-19, can be shed in an infected person's feces. By sampling sewage at waste-treatment plants, scientists can get a picture of how widespread Covid-19 has become in a community, and how its prevalence changes over time.

The extent of Covid-19 testing has varied throughout the pandemic. Because wastewater can be sampled at regular intervals, it may provide a reliable adjunct to data from clinical tests.

Biden Administration to Distribute 500 Million At-Home Covid-19 Test Kits

WASHINGTON-The Biden administration will distribute 500 million free at-home Covid-19 testing kits to Americans and take steps to deploy federal medical personnel to overburdened hospitals this winter, as the Omicron variant spreads around the country.

President Biden will outline the plan during a speech at the White House on Tuesday. His administration is grappling with how to publicly underscore the urgency surrounding the highly transmissible variant, while seeking to convey that the U.S. is better prepared to battle the pandemic than it was a year ago.

NASA's Webb Telescope to See Deeper Than Hubble to Edge of Universe

Move over, Hubble. On Friday, NASA will launch the largest and most powerful space telescope ever built.

Omicron Variant Accounts for 73% of U.S. Covid-19 Cases, CDC Says

The Omicron variant caused more than 70% of recent Covid-19 cases in the U.S., the Centers for Disease Control and Prevention said Monday, highlighting its substantial increase in infectiousness compared with earlier versions of the virus.

The CDC said Monday that Omicron had overtaken the Delta variant of the coronavirus in the U.S. and accounted for an estimated 73% of infections for the week ending Dec. 18.

New Zealand Delays Start of Border Reopening Due to Omicron

WELLINGTON, New Zealand-New Zealand's plan to gradually reopen its border has been delayed until March to slow the arrival of the Omicron variant of Covid-19, the government said Tuesday.

The country, which closed its border in March last year as part of measures to halt the spread of the coronavirus, had planned to allow vaccinated citizens to return from mid-January without undergoing quarantine.

Write to sarka.halas@wsj.com

Write to us at newsletters@dowjones.com

We offer an enhanced version of this briefing that is optimized for viewing on mobile devices and sent directly to your email inbox. If you would like to sign up, please go to https://newsplus.wsj.com/subscriptions.

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

December 21, 2021 06:28 ET (11:28 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.