MARKET WRAPS

Watch For:

EU Monetary developments in the euro area.

Opening Call:

European stocks could open lower after hitting a five week high on Tuesday. U.S. stock futures are pointing slightly higher. The U.S. dollar was unchanged. Oil rises. Gold edges lower.

Equities:

European stocks are set to slip at the open Wednesday as worries about the coronavirus omicron variant lingered following mixed cues from Wall Street.

Stocks have been buffeted by the spread of the Omicron variant in recent weeks as governments around the world have imposed restrictions to try to curb coronavirus infections. But some recent studies have suggested the variant might result in milder illness with lower risk of hospitalization.

The Centers for Disease Control and Prevention reduced the recommended isolation period for some people who test positive to try to minimize disruptions. Still, many economists have lowered their forecasts for economic growth in the first quarter of next year.

"Although omicron cases in the US and Europe amongst others, continue to surge, it has yet to make its presence felt negatively in economic data. Europe's restrictions will have a tail impact but, for now, markets are overwhelmingly pricing in the latest variant as a milder incarnation, despite its easier contractibility," said Jeffrey Halley at OANDA.

"With market activity much reduced for the holiday season, investors continue to tentatively price in a global recovery hitting a minor bump, and not a pothole," he said.

Stock investors are keeping eyes on a phenomenon known as the "Santa Claus rally." Indexes such as the S&P 500 have a tendency to rise in the last five days of the year and the first two days of the new year. Such a rally takes place at the end of about four of every five years, according to "Stock Trader's Almanac."

"It happens because people start positioning. People are reading everyone's 2022 estimates and planning for next year," said Jeffrey Meyers, a consultant to hedge funds and family offices at Market Securities

"We did have four straight days of upward movement," said Sam Stovall, chief investment strategist at CFRA. "Investors are keeping their fingers tightly crossed that we will end up with a positive 'Santa Claus' rally."

Forex:

The U.S dollar was unchanged in early Asia trading as the post-Christmas rally in stock markets lost momentum and the prospects for the American economy improve somewhat after the CDC eased Covid-19 quarantine requirements.

The move is seen as beneficial to labor markets, which continue to face shortages. The Richmond Fed manufacturing survey rises to 16 in December from 12 in November. The greenback strengthens against the euro and weakens versus the yen.

Asian currencies consolidated against the U.S, dollar but may weaken amid risk-off sentiment driven by losses in regional equity markets. Given diminishing liquidity in the foreign-exchange markets ahead of the year end, currency movements could be exacerbated by any major news developments.

For 2022, with a hawkish Fed poised to lead rate increases, higher global yields and a stronger USD, hot money could leave emerging-market economies out in the cold, Mizuho Bank said.

Bonds:

Yields on the shorter end of the Treasury curve were mostly rising as investors shook off concerns about the economic impact of the omicron variant of the coronavirus and sending the Dow industrials higher DJIA. The 2-year maturity was at a new 52-week high.

Inflation is "in a plateau" and policy makers look more aware of price increases, which should bring some degree of stability to bond markets, Louis Ricci, from Emles Advisors, told WSJ. "In short to medium, I would not be surprised to see yields where they are or lower," before rising by the end of 2022, he said.

Ricci expects the 10-year Treasury yield to be 50 to 70 basis points higher a year from now. He sees inflation concerns curbing the push to increase government spending, which in turn would eliminate the need for the Fed to further accelerate monetary tightening.

Bond yields tend to rise as the economy recovers and the Fed shuts the money spigot, Louis Ricci, from Emles Advisors said, although it won't be a steady climb. "The Fed could have the opposite effect if people think the hiking will slow the economy," which could curb yields.

Eventually, Ricci expects to see curve steepening, as the economy grows and "people become more interested in buying equities than bonds." The era of low rates has run its course. "We can't have rates like these for ever."

Energy:

Oil rose in the Asian session, amid expectations of a demand recovery going into the new year as well as a drawdown in global inventories, Mizuho Bank said.

However, the bank expects gains to be limited because global oil supply is likely to ramp up next year due to incremental OPEC+ production increases and more U.S. output.

Mizuho added that a stronger U.S. dollar could also weigh on oil prices, given their usual negative correlation.

Metals:

Gold edged lower in the Asian session, as the safe-haven metal takes a negative tack in response to the recent rally in global equity markets, DailyFX.com said.

Although rising inflation and geopolitical factors have supported gold demand, the "Santa Claus rally" and a stronger U.S. Dollar have hindered further progression, it said. Still, DailyFX says prices remain above the 50-week moving average, putting support for gold at the key psychological level of $1,800 an ounce.

Copper rose in the Asian session amid expectations that decarbonization trends and tightening supply could drive demand for the industrial metal next year, according to Argus Media.

Citing industry sources, the commodity-price reporting company added that insufficient new mine projects in the works and a global post-Covid-19 recovery are other reasons for bullishness.

However, Argus said there are still uncertainties amid continued supply-chain issues and the Omicron variant, so some price volatility seems likely.

Iron ore prices are lower in Asia morning trade, extending this week's declines ahead of the New Year holiday. Huatai Futures said the current weakness is likely because of an expected easing of downstream demand for steel products as most construction and manufacturing activities slow ahead of the year-end.

But the brokerage expects a rebound soon, given falling iron ore inventories that imply solid restocking demand in the medium term.

TODAY'S TOP HEADLINES

Biden Eyes Raskin as Top Fed Banking Regulator

President Biden is considering Sarah Bloom Raskin for a top role at the Federal Reserve as part of a slate of three nominees for central bank board seats, according to people familiar with the matter.

The administration is eyeing Ms. Raskin, a former Fed governor and onetime Treasury Department official, to become the central bank's vice chairwoman of supervision, the government's most influential overseer of the U.S. banking system, the people said.

Argentine Bonds Rally on IMF Deal Hopes

Optimism that Argentina will strike a new agreement with the International Monetary Fund has lifted prices of the country's government debt by about 10% in December, analysts said.

The strong performance coincides with an unusual admission by the IMF in recent days that the previous lending package it provided to Argentina in 2018 failed to deliver on its aims.

Biden's Worker-First Trade Policy Rankles Foreign Partners

WASHINGTON-President Biden's goal of repairing frayed relations with European and Asian trade partners is coming into conflict with his other priority of putting U.S. workers first.

What the White House calls its "worker-centric" trade policy has led to clashes with Mexico and Canada, which objected to the administration's plan to give higher tax credits to electric vehicles built by American union workers.

U.S. Home-Price Growth Slowed Again in October

U.S. home-price growth slowed for the second straight month in October, an indication that the hot housing market may be starting to cool.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 19.1% in the year that ended in October, down from a 19.7% annual rate the prior month.

Flight Cancellations Remain Elevated Today as Airlines Welcome Shorter Quarantine Periods

U.S. airlines continued canceling flights at elevated levels on Tuesday as the combination of Covid-19-driven staff shortages and weather challenges impacted the tail of the holiday travel season.

The number of scrubbed flights was on pace to match that of earlier in the week, with more than 1,100 canceled by late afternoon on Tuesday, according to data tracker FlightAware. On Monday, almost 1,500 flights within, into and out of the U.S. were canceled, with airlines challenged by bad weather in the Pacific Northwest and parts of the Midwest.

Stock Pickers Are Struggling to Beat the Market

It was supposed to be a stock picker's market.

A late 2020 rally by smaller and cheaper stocks, culminating with the meme-stock craze that started in January, raised hopes that active investing would stage a comeback this year. But as 2021 draws to a close, most professional stock pickers find themselves in familiar territory: trailing the benchmark S&P 500 index.

U.S. Treasury Yields Seem Like a One-Way Bet, Until They Aren't

It can be hard to make sense of why long-term U.S. Treasury yields are so low. But after so many years where yields were, in retrospect, too high, it is understandable why investors might hesitate to bet on them going up.

In theory, the 10-year Treasury yield is supposed to reflect what investors think the return on money continually invested at the risk-free overnight rate set by the Federal Reserve will be, adjusted for a "term premium"-the fudge factor investors build into the yield as insurance against the risk that their rate forecasts are wrong. Lately, yields have reflected investors' view that the main risk to their forecasts is that they prove to be too high.

U.S., Russia Set Schedule for Ukraine Talks in January

WASHINGTON-The U.S. and Russia have agreed to hold security talks on Jan. 10, amid tensions over Russian forces deployed near Ukraine, and Moscow's demands that NATO renounce any expansion eastward into the former Soviet bloc.

No sign has emerged that the two sides have been able to narrow their differences concerning Moscow's core demand that the North Atlantic Treaty Organization sever its military ties to Ukraine and Georgia, and rescind past statements that they eventually would join the alliance.

Syria Accuses Israel of Striking Its Main Commercial Port

Israeli missiles struck Syria's port of Latakia early Tuesday, according to the Syrian Defense Ministry, causing large fires and major damage in the second such attack on the vital facility this month.

The missiles were fired from the Mediterranean and targeted the commercial port's container yard at around 3 a.m. local time, the Syrian Defense Ministry said via the state news agency SANA. No casualties were immediately reported from the strikes, which activated Syrian air defenses, according to SANA.

Russian Court Orders Prominent Human Rights Group to Close

A Russian judge dissolved one of the country's oldest and most prestigious organizations dedicated to human rights on Tuesday, a move that government critics say furthers President Vladimir Putin's assault on dissent.

The group, International Memorial, which was founded under Soviet leader Mikhail Gorbachev to research and shed light on the far-reaching abuses committed by the Soviet system against its citizens, has increasingly come under fire from Russian authorities who labeled it a foreign agent in 2016 for taking funding from abroad.

Afghanistan's Former Female Troops, Once Hailed by the West, Fear for Their Lives

KABUL-When the Taliban seized Kabul in August, Samima dug a hole in her courtyard and buried her Afghan Air Force uniform. The Taliban discovered her past anyway, and gave her a call days later.

In a panic, she switched off her phone, got rid of her SIM card and fled her house. She says Taliban gunmen have since showed up at her parents' home, asking for people who served in the armed forces. She now is living in hiding, desperately hoping for a way out of Afghanistan.

Uganda Finds China's Leverage Is in the Fine Print of Its Lending

Chinese lending stemming from President Xi Jinping's signature Belt and Road Initiative transformed economies across the developing world. Now, as bills are coming due in Uganda and elsewhere, attention is turning to how aggressively Beijing is enforcing contractual obligations even as it sometimes extends repayment periods.

A recent flap over Chinese financing to upgrade Uganda's Entebbe International Airport has highlighted how Beijing's leverage over borrowing nations can come down to contractual fine print.

Some European Companies Struggle to Calculate How Much of Their Business Is Green

Many European companies are getting ready to tell investors how much of their revenue, capital investments and operating costs come from activities that regulators consider green.

Starting on Jan. 1, publicly listed companies with more than 500 employees-those that fall under what's known as the Nonfinancial Reporting Directive-will be required to disclose in their annual reports what percentage of their operations falls under the European Union's green taxonomy. The classification system aims to give more clarity to investors on what types of economic activities can be considered sustainable. The disclosure rules that take effect next year apply to several thousand large companies and are part of a broader effort by the EU to bring down emissions.

Power Struggle Between Somali President and Prime Minister Threatens Fight Against Extremists

NAIROBI-A power struggle erupted in already volatile Somalia on Monday, with the president suspending the prime minister and the latter announcing he would assume the president's duties, a battle that threatens to undermine the country's fight against Islamist extremists.

President Mohamed Abdullahi Mohamed, who goes by the nickname Farmajo, announced that he was stripping Prime Minister Mohamed Hussein Roble of his powers for suspected corruption.

Elon Musk Exercises Final Batch of Tesla Stock Options Behind CEO's Recent Share Dealings

Elon Musk has exercised the final batch of a package of vested Tesla Inc. stock options that have underpinned several weeks of share dealings by the chief executive.

Mr. Musk on Tuesday converted more than 1.5 million options due to expire in August 2022 into stock and sold more than 934,000 shares to cover associated taxes, according to regulatory filings.

CDC Investigating 86 Cruise Ships With Covid-19 Cases

The U.S. Centers for Disease Control and Prevention is investigating or monitoring 86 cruise ships with reported Covid-19 cases on board, according to a list posted on its website Tuesday, as the highly transmissible Omicron variant spreads around the world.

The CDC investigates a ship if there are one or more reported Covid-19 cases among the crew or if cases reported account for at least 0.10% of total passengers in the past seven days. For a ship with 6,500 passengers, that would mean seven cases would trigger an investigation.

Riot Games to Pay $100 Million to Settle Gender Discrimination Suit

Riot Games, the company behind videogames such as League of Legends and Valorant, has agreed to pay $100 million to settle female workers' allegations of gender discrimination.

The deal closes out three years of litigation over allegations that Riot-a subsidiary of China's Tencent Holdings Ltd.-paid women less than men, held back their careers and mistreated them in other ways. The case was one of several instances in recent years of women calling out what they saw as unequal treatment in the ranks of the videogame industry.

Walmart's China Dilemma is Every Western Company's, Too

Walmart is struggling with a public outcry in China after the country's netizens accused the company of failing to stock products from China's Xinjiang region, where the government has imprisoned large numbers of the Turkic Uyghur minority.

On the face of it, this is nothing new: Foreign companies in China have faced periodic boycotts for years. But that fact conceals profound changes in the political and economic environment in China. If they persist, longstanding assumptions about consumer companies' need to invest in China-or be left behind globally-could start to unravel.

Write to sarka.halas@wsj.com

Expected Major Events for Wednesday

07:45/FRA: Nov Housing starts

09:00/AUT: Dec Austria Manufacturing PMI

09:00/EU: Nov Monetary developments in the euro area (M3)

09:30/UK: Nov Capital issuance

11:00/POR: Nov Retail trade

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

(END) Dow Jones Newswires

December 29, 2021 00:23 ET (05:23 GMT)