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Stocks Soar On Optimism Omicron Is A Dud As Traders Focus On Growing China Stimulus

Stocks Soar On Optimism Omicron Is A Dud As Traders Focus On Growing China Stimulus

U.S. index futures rallied, led by gains for Nasdaq 100 contracts, amid waning omicron worries and a booster shot of Chinese stimulus lifted world stock marke

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Stocks Soar On Optimism Omicron Is A Dud As Traders Focus On Growing China Stimulus

U.S. index futures rallied, led by gains for Nasdaq 100 contracts, amid waning omicron worries and a booster shot of Chinese stimulus lifted world stock markets and oil on Tuesday and left traders offloading safe-haven currencies and bonds for the second day in a row. Emini S&P futures were up 61 point to 4,650.75 or about 120 points higher then where Gartman said "stocks are headed lower" some 24 hours ago. Nasdaq futures were up 1.8% and Dow futures rose 1% in premarket trading. In fact, futures are now just 50 points away from where they were below the Black Friday Omicron panic plunge.

The FTSEurofirst 300 index was on track for its first back-to-back run of plus 1% gains since February while Asia saw record bounces from some of China's biggest firms such as Alibaba which soared by the most since its 2019 listing in Hong Kong, leading a rebound in Chinese tech stocks, as bargain hunters piled in amid improved sentiment following Beijing’s move to bolster the economy. The MSCI Asia Pacific Index climbed 1.7% while Japan’s Topix index closed 2.2% higher. The VIX dropped for a second day, sliding below 24, but remained above this year’s average.

The risk-on mood also helped the dollar climb against safe haven currencies such as the Japanese yen, , which had lost 0.6% overnight, as the confidence-sensitive Australian dollar also found buyers. Safe-haven government bonds went the other way with yields  up 2.5% on Germany's benchmark 10-year Bund after falling to a three-month low on Monday.

Reports in South Africa said Omicron cases there had only shown mild symptoms and the top U.S. infectious disease official, Anthony Fauci, told CNN "it does not look like there's a great degree of severity" so far. "Good news relating to the severity of Omicron should be taken with a pinch of salt. Faster transmission could offset the benefits of milder symptoms," researchers at ING said in a note. "More broadly, it is still early days, even if markets are starting to display Omicron fatigue."

"While epidemiologists have rightly warned against premature conclusions on Omicron, markets arguably surmised that last week's brutal sell-off ought to have been milder," Vishnu Varathan, head of economics and strategy at Mizuho Bank, said in a note. "After all, early assessments of Omicron cases have been declared mild, spurring half-full relief."

There are signs of “a fragile improvement in market mood,” said Ipek Ozkardeskaya, senior analyst at Swissquote. Still, “no headline addresses the major concern of the week: the rising U.S. inflation, which is a big threat to the investor mood, as the U.S. CPI data is due Friday, and the expectation is an advance to a strong 6.7%,” Ozkardeskaya wrote in a report. “We could see wild mood swings into the second half of the week.”

The gains also came after China's central bank on Monday injected its second shot of stimulus since July by cutting the RRR - or the amount of cash that banks must hold in reserve. Then on Tuesday, the PBOC said that the Interest rate for relending to support rural sector and smaller firms will be cut by 0.25 percentage point, effective from today, with 3-mo, 6-mo and 1-yr relending rates will be cut to 1.7%1.9% and 2%.

After pretending it would let the economy falter for months, Beijing is finally firmly in pro-growth mode with the Politburo stating that stability is the top priority ahead of next year’s Communist Party congress. Premier Li Keqiang also said China has room for a variety of monetary policy tools after yesterday’s reserve ratio cut. As a result, the beaten down financial and property stocks were the biggest winners amid the change in tone from policy makers. In Hong Kong, Alibaba Group Holding Ltd. soared by the most since its 2019 listing. Global markets are also getting a lift from the easing policy pivot in world’s second-largest economy which we first flagged more than a weeks ago.

* * *

In the premarket, Intel shares rose 7.7% in premarket trading after the chipmaker confirmed a WSJ report that it plans to float a minority stake in its Mobileye self-driving car business by the middle of next year. Alibaba jumped as much as 5.4% in U.S. premarket trading Tuesday, adding to a 10% rally on Monday as with Chinese tech stocks rebound. Alibaba’s climb in the U.S. comes after its shares posted their biggest gain since June 2017 on Monday.

Cruise operators and airline stocks are trading higher for a second session as investors assess the severity of the omicron virus variant. American Airlines was among the notable outperformers after naming President Robert Isom to replace retiring CEO Doug Parker. AAL rose 3% in premarket trading, while UAL climbs 2.6% and JBLU jumps 2.7%; other gainers include: ALK +2.6%, DAL+2.3%, LUV +2.4%, Royal Caribbean and Norwegian Cruise added 3.3%, while Carnival increased 3.1% in premarket trading. Casino operators also rebounded, led by Las Vegas Sands +3.5%, Wynn Resorts +2.7%, MGM Resorts +2.3% after Hong Kong’s Carrie Lam said the city will prioritize quarantine-free travel for business people when its border with mainland China reopens.

In Europe every industry sector rose, led by tech and mining companies, to push the Stoxx 600 Index to a 2% gain led by technology, mining and consumer companies. AstraZeneca was an outliker, falling 2% in London after the company agreed to pay Ionis Pharmaceuticals as much as $3.6 billion to gain rights to a promising medicine for a rare disease. European e-commerce stocks that benefited from increased demand during pandemic-related lockdowns rose in Europe on Tuesday, with many outperforming the benchmark Stoxx 600’s biggest gain since March. Among the names were Allegro +6.3%, Moonpig +5.3%, Global Fashion Group +5.3%, Asos +5.1%, Zalando +4.6%, THG +3.7%, Boozt +3.3%, Ocado +2.4%, Boohoo +1.9%. “As concerns grow over rising case numbers, we expect some people will prefer to shop online again to limit their visits to stores,” Fraser McKevitt, head of retail and consumer insight at Kantar, says in emailed comments.

Asian equities advanced, on track for their best day in more than three months, following China’s latest moves to bolster growth in the world’s second-largest economy.  The MSCI Asia Pacific Index rose as much as 1.8%, poised for its biggest gain since Aug. 24. Consumer-discretionary firms contributed most to the market’s climb, led by Alibaba as bargain hunters snapped up recently rattled Chinese tech stocks. Benchmarks in Hong Kong and Japan led broad gains around the region.  China’s central bank said it will cut the amount of cash most banks must keep in reserve from Dec. 15, providing a liquidity boost. Meanwhile the Communist Party’s Politburo signaled an easing of curbs on the battered real-estate sector. “Anxiety over the Chinese economy is abating thanks to the cut in the banks’ reserve ratio and a partial easing of real-estate regulations,” said Hiroshi Namioka, chief strategist at T&D Asset Management Co. Plus, “an overall risk-on mood is being created as people turn increasingly optimistic about any impact from the omicron, leading to higher U.S. equities and long-term yields.”  Financials and industrials also boosted the region’s key equity gauge Tuesday as investors looked toward reopening prospects. The day’s rebound marks a sharp turnaround following weeks of declines since mid-November. U.S. equities overnight rebounded from Friday’s selloff after reports that cases of the omicron variant have been relatively mild.

Japanese equities rose by the most in over a month, as investors were cheered by reports of Chinese policy makers moving to support the nation’s economy and that global omicron virus cases have been relatively mild. Electronics makers and telecoms were the biggest boosts to the Topix, which gained 2.2%, the most since Nov. 1. SoftBank Group and Tokyo Electron were the largest contributors to a 1.9% rise in the Nikkei 225. The yen extended its loss against the dollar after weakening 0.6% overnight. U.S. stocks climbed Monday after news from South Africa that showed hospitals haven’t been overwhelmed by the latest wave of Covid cases. Meanwhile, China President Xi Jinping oversaw a meeting of the Communist Party’s Politburo on Monday that concluded with a signal of an easing in curbs on real estate. “Cyclical stocks, China-linked names and automakers that had been sold on a stronger yen will likely be bought up following China’s change in policy stance,” said Hideyuki Ishiguro, a strategist at Nomura Asset Management in Tokyo. “This will alleviate worry over a slowdown in the Chinese economy.”

India’s benchmark equity index bounced back from a three-month low on optimism that the global economic recovery may be able to withstand risks associated with the omicron virus variant.  The S&P BSE Sensex climbed 1.6% to 57,633.65, in Mumbai, while the NSE Nifty 50 Index also advanced by a similar magnitude. ICICI Bank Ltd. provided the biggest boost to both the gauges with a 3.5% gain. Out of the 30 shares in the Sensex, 29 rose and one fell. All 19 industry sub-indexes compiled by BSE Ltd. gained, led by a measure of metals companies. The uncertainty from the omicron variant, along with expectations of rapid tapering by the U.S. Federal Reserve have tested the risk appetite of investors in the previous two sessions in India. However, markets across Asia advanced Tuesday after China pledged measures to support slowing economic growth. “Indian markets mirrored the sharp buoyancy in global indices on the back of short-covering by market participants. The rally was backed by a sharp upsurge in banking and metal stocks, which had taken a severe hammering in recent sessions,” Shrikant Chouhan, head of equity research at Kotak Securities Ltd. wrote in a note.  Australia’s central bank -- at its monetary policy meeting Tuesday -- left its key interest rate unchanged and said that while the strain is a source of uncertainty, it’s not expected to derail the recovery. Reserve Bank of India will announce its rate decision on Wednesday. 

In FX, the Dollar Spot Index inched lower as commodity currencies led gains among Group-of-10 peers. The volatility skew for the Bloomberg Dollar Spot Index shows bullish bets on the greenback over the one-month tenor stand near their lowest since August. This may change as soon as next week after Friday's CPI report. The euro reversed an Asia session gain to touch a December low of $1.1254 in early European hours. Bunds and Italian bonds slumped, led by the belly after ECB’s Holzmann yesterday said rate hikes are possible while still buying debt. Money markets continue to price the first 10bps rate hike in December 2022 but October pricing jumps to 7.5bps from 6bps on Monday.

The pound was steady against the dollar, trailing other risk-sensitive currencies, with focus on next week’s Bank of England meeting and how officials will assess the threat of the omicron strain. The Norwegian krone and the Canadian dollar advanced amid rising oil prices and before the Bank of Canada meeting Wednesday. Australian bond yields extended gains and the Aussie dollar advanced versus all of its G-10 peers as central bank optimism that omicron won’t disrupt the economic recovery underscored bets on sooner-than-expected rate hikes. Australia’s central bank left monetary settings unchanged, citing uncertainties from omicron, while highlighting positive signs in the labor market and broader economy. Finally, the yen fell a second day after easing concern over the coronavirus omicron variant

In rates, Treasuries were narrowly mixed with the front-end lagging ahead of today's 3-year auction. Treasury 2-year yields were cheaper by 2.2bp on the day, flattening 2s10s spread by 1.8bp and unwinding portion of Monday’s steepening move; 10-year yields around 1.436%, slightly cheaper on the day. Bunds lag by 1.3bp after ECB’s Holzmann says rate hikes are possible while still buying debt -- BTP’s cheapen 2.5bp vs. Treasuries in 10-year sector. U.S. TSY auctions resume with $54b 3-year note sale at 1pm ET, before $36b 10- and $22b 30-year Wednesday and Thursday; the WI 3-year around 0.973% is above auction stops since Feb. 2020 and ~22bp cheaper than November’s sale, which tailed the WI by 1bp.

In commodities, oil prices jumped another 2% to $74.60 a barrel, adding to a near 5% rebound the day before as concerns about the impact of Omicron on global fuel demand eased; WTI rose about 3% near $71.50. Copper prices also ticked higher while gold was steady at $1,778.5 per ounce on expectations U.S. consumer price data due later this week will show inflation quickening. European natural gas futures rose on talk of fresh Russian sanctions. Spot gold is choppy near $1,780/oz. Base metals are well bid given the broader risk-on tone: most of the complex rises over 1% with LME zinc outperforming. 

Looking at today's calendar, we have trade balance data for October at 8:30 a.m, while the EIA short-term energy outlook is published at 12:00 p.m. The US sells $54 billion of 3-year notes at 1:00 p.m. Biden and Putin talk from 10:00 a.m. Jeffrey Gundlach hosts his Total Return webcast from 4:15 p.m. Autozone Inc. and Toll Brothers Inc. report results.

Market Snapshot

  • S&P 500 futures up 1.3% to 4,650
  • STOXX Europe 600 up 1.7% to 476.71
  • MXAP up 1.7% to 193.18
  • MXAPJ up 1.7% to 627.71
  • Nikkei up 1.9% to 28,455.60
  • Topix up 2.2% to 1,989.85
  • Hang Seng Index up 2.7% to 23,983.66
  • Shanghai Composite up 0.2% to 3,595.09
  • Sensex up 1.6% to 57,657.07
  • Australia S&P/ASX 200 up 0.9% to 7,313.90
  • Kospi up 0.6% to 2,991.72
  • Brent Futures up 2.3% to $74.73/bbl
  • Gold spot up 0.0% to $1,778.95
  • U.S. Dollar Index little changed at 96.36
  • German 10Y yield little changed at -0.36%
  • Euro down 0.2% to $1.1268

Top Overnight News from Bloomberg

  • The ECB said its supervision arm will focus its scrutiny in the coming three years on risks that lenders face from a potential spike in bad loans and their search for higher returns
  • Hungary’s central bank is nowhere close to stopping a monetary tightening campaign that will make the country’s real interest rates the highest in central Europe, Deputy Governor Barnabas Virag said
  • The U.S. and European allies are weighing sanctions targeting Russia’s biggest banks and the country’s ability to convert rubles for dollars and other foreign currencies should President Vladimir Putin invade Ukraine, according to people familiar with the matter
  • China’s exports and imports grew faster than expected in November, with both hitting records as external demand surged ahead of the year-end holidays and domestic production rebounded on an easing power crunch.
  • Some China Evergrande Group bondholders have not received overdue coupon payments after the end of a month-long grace period, putting the world’s most indebted property developer on the brink of its first default on offshore notes
  • U.K. house prices hit a record in November, with values over the past three months rising at their fastest pace for 15 years, according to mortgage lender Halifax

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mostly positive following the heightened risk appetite among global peers, including in the US, where the DJIA posted its best performance since March and all sectors in the S&P 500 finished positive. Omicron concerns abated throughout the session and resulted in notable outperformance across travel and leisure stocks, while the region also took its opportunity to digest the PBoC's recent RRR cut announcement and mostly better than expected Chinese trade data. The ASX 200 (+1.0%) was positive with broad gains across its sectors aside from utilities and with momentum helped after a lack of surprises at the RBA policy decision - which refrained from any policy tweaks. Nikkei 225 (+1.9%) outperformed and regained a firm footing above the 28k level as exporters benefitted from a weaker currency, and with the advances led by SoftBank which atoned for the recent declines in its portfolio companies. The Hang Seng (+2.7%) and Shanghai Comp. (+0.2%) were both initially lifted in early trade after the announcement of the PBoC’s RRR cut, which is said to likely calm markets amid increasing developer risks, although the mainland bourse then gave back its gains after the PBoC continued to drain liquidity in its daily open market operations. Furthermore, reports that the PBoC lowered its relending rate by 25bps for agricultural and small companies also failed to boost the mainland as this is viewed as a more targeted supportive measure. Finally, 10yr JGBs declined and re-approached the key psychological 152.00 level on spillover selling from USTs as stocks gained and Omicron fears abated. The results of the latest 30yr JGB auction were mixed with higher accepted prices and lower yield offset by a weaker b/c and wider tail in price.

Top Asian News

  • Asian Stocks Set for Best Day in 3 Months as China Tech Rebounds
  • Alibaba Jumps Most Since H.K. Listing as China Tech Rebounds
  • Malaysia Court Dismisses Najib’s Plea, SRC Verdict Due Wednesday
  • LG Energy Seeks Up to 12.75t Won IPO, Biggest in Korea

European stocks have conformed to the risk appetite seen across global peers (Euro Stoxx 50 +2.5%; Stoxx 600 +2.0%), which initially emanated from Wall Street, before seeping into APAC and reverberating in Europe. There is no clear catalyst behind the gains, although desks have been attributing the optimism to receding fears regarding the Omicron variant – with no recorded deaths thus far. That being said, some of the key tail risks to markets have not subsided, with liquidity also expected to be more anemic in the run-up to next week’s risk-packed docket before year end. Nonetheless, US equity futures are grinding higher with the NQ (+1.9%) in the lead, closely followed by the RTY (+1.7%), whilst the ES (+1.3%) and YM (+1.0%) see slightly less pronounced gains. Back in Europe, Euro-bourses see broad-based upside but the UK’s FTSE 100 (+1.1%) and the Swiss SMI (+0.7%) are capped by underperformance in the defensive sectors – with Healthcare and Food & Beverages towards the bottom of the bunch. Sectors are overall in the green with a clear and firm pro-cyclical bias. Tech leads the gains following its recent underperformance, with Basic Resources also among the winners as base metals post decent gains. In terms of individual movers GSK (+0.5%) remains supported after pre-clinical data demonstrate the potential for monoclonal antibody Sotrovimab to be effective against the latest variant, Omicron, plus all other variants of concern defined to date by the WHO. As a reminder, the co. last week said its COVID treatment Sotrovimab retains its activity against the Omicron variant. British American Tobacco (+2.1%) is firmer followed by a positive trading update alongside Babcock (+5.2%) and Ferguson (+4.0%). On the downside, AstraZeneca (-1.7%) resides towards the foot of the Stoxx 600 amid a downgrade at Jefferies, alongside the broader anti-defensive narrative. Looking at analysts’ commentary, Barclays suggests that the Fed is unlikely to over-deliver on the rate hikes that are already priced in, with the bank unphased by the recent Powell pivot and Omicron resurgence. Barclays maintains its positive view on 2022 equities and upgraded its European small caps to overweight on improving fundamentals but oversold performance, and downgraded Momentum to market-weight.

Top European News

  • U.K. House Prices Post Strongest Quarterly Increase Since 2006
  • Republicans’ Pecresse Ties With Le Pen in French Poll
  • Ferguson 1Q U.S. Organic Revenue Beats Estimates
  • EU Aims to Unveil Green Rules for Gas, Nuclear Projects Dec. 22

In FX, although the Buck remains bid on bullish US fundamentals and the index is finding plenty of underlying buying interest/support into 96.000, the overall market mood is constructive enough to help riskier currencies outperform, and shrug off another dovish RBA policy meeting in the case of the Aussie. Instead, Aud/Usd and Aud/Nzd are gaining more ground on the coattails of iron ore prices and favourable tradewinds, as Chinese imports surged beyond expectations and outpaced exports that also beat consensus to leave the surplus somewhat short of the mark. The headline pair reached 0.7101 before running into resistance and 1.2 bn option expiry interest at the 0.7100 strike, while the cross has breached 1.0450 convincingly to expose 1.0500 ahead of NZ Q3 manufacturing sales on Wednesday and following RBNZ Assistant Governor Hawkseby sticking to a considered line on further rate normalisation overnight. He also said the Kiwi is in a broad range of where it is expected to be and that a higher currency in the short-term will help us achieve objectives more quickly. Nzd/Usd is still rotating around 0.6750, while the Loonie is latching on to the latest leg up in WTI over Usd 71/brl to test offers protecting 1.2700 vs its US rival in advance of Canadian and US trade data, Ivey PMIs and tomorrow’s BoC, with the DXY fading following a fleeting breach of Monday’s peak within 96.447-168 confines, Note also, 1.1 bn option expiries reside between 1.2750-55 in Usd/Cad and could cap recovery rallies. Elsewhere, the Scandinavian Crowns continue to rebound from recent lows against the Euro, and Brent’s bounce to the brink of Usd 75/brl is helping the Nok probe 10.2000 rather than a somewhat mixed Norges Bank regional network survey, while the Sek is lagging circa 10.2400 amidst Riksbank concerns over the lack of liquidity and transparency in Sweden’s corporate bond market that needs to be addressed.

  • CHF/GBP/EUR/JPY - The G10 laggards to varying degrees, with the Franc trying to pare losses from sub-0.9250 vs the Dollar and more successfully against the Euro from almost 1.0450 towards 1.0400, while the Pound is holding mostly above 1.3250 in Cable terms and Eur/Gbp is pivoting 0.8500 as the single currency remains under the psychological 1.1300 level vs the Greenback irrespective of supportive Eurozone macro impulses via better than forecast German industrial output and ZEW economic sentiment over bleak current conditions. Similarly, the Yen remains weak on risk and rate/yield dynamics and Usd/Jpy is now firmer within a loftier 113.40-74 range before a raft of Japanese releases including Q3 GDP revisions and October’s current account balance.
  • EM - More easing in China, but resilience or even ongoing strength in the Cny and Cnh in wake of the PBoC shaving 25 bp off the relending rate for agricultural and small companies, according to sources in the Securities Times that also suggests in tune with the China Daily that an LPR cut may be in the offing. Conversely, weakness in the Rub awaiting the call between Putin and Biden and the Zar on the back of SA GDP missing already low-key expectations, but the Try is nursing some declines in what could be reasonably described as intervention fashion.

In commodities, WTI and Brent front-month futures are firmer on the session, buoyed by the risk appetite across the markets. From a fundamental standpoint, the benchmarks remain underpinned by the lack of progress in Iranian nuclear talks coupled with the OSP hike seen by Saudi Aramco over the weekend for Asia and US customers – typically a reflection of firmer demand. The morning also saw some reports suggesting Yemen Houthis fired several ballistic missiles and 25 armed drones on Saudi Arabia, including Aramco facilities in Jeddah, but details remain light. Aside from that, the morning’s newsflow has been on the quiet side, with the macro environment currently dictating price action. WTI Jan is back on a USD 71/bbl handle (vs low 69.50/bbl) while Brent Feb topped USD 75.00/bbl (vs low USD 73.20/bbl). In terms of bank forecasts, Citi sees a dramatic fall in energy prices from Q4 2021 to Q4 2022 averages – with Brent seen at USD 62/bbl (from USD 79/bbl) and WTI seen at USD 59/bbl (from USD 75/bbl). Over to metals, spot gold and silver move in tandem with the Buck featuring the former around USD 1,780/oz and caged below that cluster of DMAs which today sees the 50, 100 and 200 at USD 1,793/oz, USD 1,790/oz and USD 1,791/oz respectively. Elsewhere LME copper takes impetus from the broader risk appetite, with prices back north of USD 9,500/t and extending on gains, with the Chinese trade data also supportive for the base metal complex. Overnight, Dalian iron ore futures gained focus as prices were bolstered by the recent liquidity action taken by the PBoC coupled with more sanguine commentary surrounding the Chinese housing market, according to some analysts.

US Event Calendar

  • 8:30am: 3Q Unit Labor Costs, est. 8.3%, prior 8.3%
  • 8:30am: 3Q Nonfarm Productivity, est. -4.9%, prior -5.0%
  • 8:30am: Oct. Trade Balance, est. -$66.8b, prior -$80.9b
  • 3pm: Oct. Consumer Credit, est. $25b, prior $29.9b

DB's Jim Reid concludes the overnight wrap

It’s with much trepidation that I take an hour off work this morning to visit my 4-year old twins’ nativity play. They are by far the youngest in their Reception year and given they were premature, in reality there are technically older kids in the nursery year. As such my expectations were always well managed when the parts were being doled out that they wouldn’t be competing for the blockbuster roles such as Joseph! These expectations were met as they have been cast as “presents”. So I think they have to sit there with a bow around them and try to remember some of the words in the songs they have been given to sing. Success would be for them not to have a fight mid-performance as they do most evenings when I see them. Only when you have identical twins can you witness such love and hatred displayed within the space of a few seconds.

Markets have been swinging between love and hate over the last 10 days with the former winning out yesterday as investors’ concerns eased around the Omicron variant. Obviously we’re still awaiting definitive data on a number of points, but more generally the suggestions that it could be less likely to cause severe disease has injected some optimism back into markets after the recent selloffs. As a result, we saw a decent bounceback among the major equity indices on both sides of the Atlantic, an advance for oil prices following 6 successive weekly declines, and investors even moved to marginally bring forward the likely timing of central bank rate hikes.

We’ll start with equities, where risk appetite only increased as the day went on, with the S&P 500 (+1.17%) posting a broad-based advance that saw over 85% of the index’s members advancing. Europe also put in a strong performance, with the STOXX 600 up +1.3%, whilst many indices saw their biggest advances in months. That included the UK’s FTSE 100 (+1.5%), Spain’s IBEX 35 (+2.4%), and Italy’s FTSE MIB (+2.2%), which, outside of last Wednesday, were the best daily performances since July. European tech shares lagged the broader rally, with the STOXX Technology index down -0.33%, though US tech shares gained steam after the European close, with the Nasdaq up +0.93%, trailing the S&P by a more modest amount.

Greater optimism about the new variant proved supportive for oil prices too, with Brent crude (+4.58%) and WTI (+4.87%) posting gains after a run of 6 consecutive weekly declines, having also been supported by Saudi Arabia’s move to raise oil prices to Asia and the US in January. Oil prices are up another 1% this morning. However, there was a big decline in US natural gas futures (-11.50%) yesterday, the worst daily performance since January 2019, as the mild weather outlook has served to dampen demand.

Over in sovereign bond markets there was a fresh selloff in US Treasuries, and a steepening of the yield curve, as the optimism about Omicron led investors to bring forward their expectations of future rate hikes. Yields moved higher across the curve, with those on 10yr yields up +9.1bps to 1.43%, as both real yields and inflation breakevens moved higher on the day, whilst the 2s10s curve managed to steepen +4.7bps to 79.9bps. 10yr yields are up another +1.4bps this morning. Near-term, the first Fed rate hike is again fully priced by the June FOMC meeting. Over in Europe, yields were lower, with those on 10yr bunds (-0.1bps), OATs (-0.4bps) and BTPs (-3.8bps) all declining, though the greater risk appetite was reflected in the narrowing of peripheral spreads, with the gap between Italian and Spanish yields over bunds both tightening by the close.

Overnight in Asia stocks are all trading up with the Nikkei (+2.09%), Hang Seng (+1.62%), CSI (+0.51%), KOSPI (+0.47%) and Shanghai Composite (+0.12%) all stronger. China’s RRR cut yesterday is certainly helping sentiment. On the data front, China's trade balance for November came in at $71.72 bn (consensus $83.60 bn and $84.54 bn previously), lower than expected as imports grew at +31.7% year-on-year against +21.5% consensus. Exports (+22%) were slightly higher than expected.

Elsewhere the Reserve Bank of Australia held its benchmark interest rate unchanged while cautioning that price pressures remain subdued in Australia compared with other economies as the RBA expects it to reach 2.5% by 2023. Our economists put out a note suggesting that if you squint, the RBA commentary was slightly hawkish though. See more here if you’d like their review. Elsewhere futures are pointing to a positive start in the US and Europe with the S&P 500 (+0.34%) and DAX (+0.38%) contracts trading in the green.

Looking ahead, one of the important events today will be the scheduled video call between US President Biden and Russian President Putin. The Biden administration, in concert with European allies, is reportedly weighing whether to bring economic tools to bear against Russia in response to the recent flare up on the Ukrainian border. Measures being considered included sanctions against President Putin’s inner circle, energy producers, and banks, as well as the more drastic option of denying Russian access to US-run international payments system, SWIFT. The Ruble depreciated -0.66% against the US dollar after having appreciated +0.50% in the morning before the headlines.

In terms of other developments on the pandemic, the global case count has been moving higher for 7 consecutive weeks now, and we got fresh news of tougher restrictions in New York City yesterday. They’re set to place a vaccine mandate on private sector workers from December 27, whilst indoor dining and entertainment will be requiring those aged 12 and over to be fully vaccinated, and those aged 5-11 to have one dose. Here in the UK, over 50k confirmed cases were reported yesterday once again, and the average number of cases over the last week now stands up +9% on the week before.

Turning to Germany, the main news yesterday was that the Greens became the final party of the incoming traffic-light coalition to approve the negotiated agreement, with 86% of members in favour. That follows similar moves by the SPD and the FDP, and today the parties are set to formally sign the deal, with Olaf Scholz set to become chancellor tomorrow in a Bundestag vote, which will also bring an end to Chancellor Merkel’s 16-year tenure. For a run down on what to expect from the new government, our research colleagues in Germany have put together a guide on the various policy areas (link here). Staying on Germany, data also showed yesterday that factory orders fell by a much larger-than-expected -6.9% in October (vs. -0.3% expected), with the decline driven by a -13.1% fall in foreign orders, contrary to domestic orders which actually expanded +3.4%.

To the day ahead now, and data highlights include German industrial production for October and the ZEW survey for December, along with the US trade balance for October. Otherwise, US President Biden and Russian President Putin will be holding a video call.

Tyler Durden Tue, 12/07/2021 - 07:59

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Those big billion-dollar PhIII studies? Martin Landray says they can be done for a tiny fraction of the cost

Martin Landray knows what controversy in clinical drug development feels like, from first-hand experience.
Bioregnum Opinion Column by John Carroll
Landray…

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Martin Landray knows what controversy in clinical drug development feels like, from first-hand experience.

Bioregnum Opinion Column by John Carroll

Landray was the chief architect of RECOVERY, a study that pitted a variety of drugs against Covid-19. And he offered some landmark data that would help push dexamethasone out into broader use as a cheap treatment, while helping ice hydroxy’s reputation as a clear misfire.

“Lots of people told us we shouldn’t use it,” Landray says about dexamethasone and Covid-19. “It was dangerous. We shouldn’t even do a trial. They also cared about hydroxychloroquine and lots of people said we shouldn’t do a trial because it must be used. I’ve got the letters from both sets of people.”

Now, after 20 years of mounting clinical trials, the Oxford professor is building on what he’s learned from RECOVERY and scores of drug studies to take on one of the most quixotic tasks in the industry: building an organization that can take a drug — anything from a cheap generic like dexamethasone to an experimental biopharma drug — and put it through its paces in large Phase III trials. And at just a tiny fraction of the cost developers would normally spend on late-stage programs.

A lot of this depends on approaching drug data in a new way, carefully and precisely identifying the data needed, without overcomplicating matters, then working in alignment with key drug developers, patient groups, providers — the UK’s NHS, with its massive database, is a supporter — and clinical organizations to recruit en masse.

In doing that, he intends to break a decades-long trend in drug development that has steered large and small organizations away from the big population studies needed for cardio and other broad disease areas like dementia and into the rare disease field, where smaller trials are the norm.

And that makes him a radical in what he sees as a field that’s begging for a game-changing revolution.

“It’s unsustainable,” says the Oxford professor about the Phase III sector of R&D. “I mean, it’s already broken … The so-called GCP regulations, good clinical practice, the old joke goes they’re not good, they’re not clinical, and they’re not practical. And that joke has been around 25 years and hasn’t changed much.”

This is not something that needs incremental improvement. From his perspective, this is a big issue for the world.

Huge financial and public health issues were at stake when the Covid vaccines first entered the clinic, and decisions were made on those with what Landray considers “pretty scruffy evidence.”

“The original vaccine trials cost probably a billion dollars apiece,” Landray says. “The idea, if you turned around to one of those companies and said, ‘And now we want you to do a trial of a million people.’ They’d say, ‘Well, our pockets are just not that deep.’ If you say, ‘Well, I want to do a trial of a million people and it costs a million pounds,’ suddenly the possibilities open up. And we put the proposal together for that. I’m absolutely serious about those numbers.”

David Schenkein

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Landray has done more than simply win over some converts to the Phase III revolution he’s plotting. He’s building a non-profit organization called Protas that has drawn some influential backers in biopharma. Sanofi came in early on with a promise to collaborate and £5 million. And today GV — Google’s venture arm — is in for another £5 million grant, with active support from David Schenkein, a high-profile researcher who helped build Agios before jumping to venture capital.

“I’ve been doing clinical trials my whole life out of grade school,” Schenkein, a Genentech alum, tells me, “and we need to see the whole ecosystem improve. And that’s good for everybody. So it is definitely a philanthropic grant, but we think it’ll improve the entire ecosystem, which we’re obviously so committed to. We’ve known Martin and his team for years and have just been incredibly impressed. And we’ve looked at the clinical trial space and we’ve talked about this before, you and I, but what Martin and his team have done have just been outpacing everybody else.”

“There’s no question that the way we do Phase III clinical trials today is largely no different than the way we did them when I first went into the industry or where we’ve been doing it for 40 years, which means we enroll patients the same way we used to. We don’t go directly to patients in many cases,” Schenkein adds. “We only go through the sites. The sites say, ‘Yeah, I’ll give you 20 patients.’ They end up giving you zero. And so you need more sites. We end up collecting way more data. We don’t know which is the right data to collect, and so we collect everything. We clean everything. And all of that drives the cost up exponentially and slows it down. And what Martin and his team have just gotten so much smarter using data to be able to say, not only how do we enroll patients in a different way, how do we know the right data to collect, not collect too much data, the right data. So all of that will just completely change the way we think about conducting clinical trials, and that has to happen.”

Dietmar Berger

“We engaged with them because we believe integration of clinical trials into everyday clinical practice can be an important new model, which offers advantages both for the healthcare system as well as for sponsors,” Sanofi development chief Dietmar Berger tells me. “Running large late-stage trials in close collaboration with practicing physicians and a large healthcare provider (for example via Protas) can lead to more efficient data generation, with representation of a diverse, ‘real world’ population. This could apply especially for large studies in common diseases, and include novel drugs.”

Right now, there are no trials underway at Protas or ones planned before 2024. Landray is using his funding to create a group that can orchestrate a variety of new methods to smash classic Phase III budgets. And his experiences running the informatics part in the early days of the UK Biobank project — with its half a million subjects enrolled in a massive genetics project — have helped.

We just need to spend those two years making sure that we’ve got all the right things in place. Part of that is technology. IT systems actually make it easier to do the right thing in terms of following the protocol. Part of that is about regulatory and other policies. And we’ve been doing a lot of work with ICH, with FDA, with all sorts of organizations around what should good clinical trials regulation look like? Part of that is building on the experiences from things like the RECOVERY trial. Part of that is partnerships with clinicians, clinical health services, and patient groups. We need those things in place before one actually starts delivering.

If you say, have we started planning? Yes, we’ve started thinking about some of those first trials. I just don’t have anything concrete to talk about today.

Landray has given this all a lot of thought, and it’s worth listening carefully to what he has to say about the many things that have skewed so far off course in drug development. And why it’s important to get on the right track.

What we’ve seen is that Big Pharma has largely opted out of developing new drugs for common diseases. That’s true in heart disease, in arthritis, and so on. Respiratory disease. It’s very true if one looks at depression. It’s substantially true if one looks at dementia, where there are two challenges to dementia. One is, can we find some potential drugs that might work? Probably. And then the second is, how are we ever going to make that commercially successful? And that’s going to be driven in large part by what’s the affordability and the practicality of doing those sorts of trials that you would need to do in dementia.

So it’s not just about how we get drugs cheaper, but it’s also, from my point of view, it’s can we get better drugs to treat the big issues? And if one looks at a health system and again — goes back to that point of view for a moment — the reason that everybody’s health system is creaking/broken is largely because there are very large numbers of people who are late middle aged and elderly with two or three or possibly more relatively common conditions. And if we want to actually get something that is much more sustainable in terms of an overall health system and public health, then we have to tackle common disease and we have to also tackle the prevention elements, whether that’s early detection of cancer or preventative treatments like reducing the risk of future cardiovascular events.

Schenkein agrees wholeheartedly: “I think that the most important factor here is the shift we’ve seen in our industry away from investments in the common diseases more towards the rare. I agree with Martin. The rare diseases are critically important, but that shift has to come back the other way.”

Consider the case of PCSK9, the big target that drove Amgen and Novartis out onto the market with limited data on efficacy in an attempt to reach a portion of the population that could benefit from it.

Here’s Landray:

In the PCSK9 antibodies, yes, they showed it reduced MACE, major cardiovascular events, but didn’t show an impact on cardiovascular death and they didn’t have the full range of safety information you might want to see for a new class of drugs. Then what happens was that someone had to pay back the cost of those trials. One of the many contributing factors, but a significant one, is how do we recoup our R&D costs, of which something like half or more is probably on that single late-phase trial.

And then the payers turn around…and they say, that’s all very well, but we see you’ve demonstrated efficacy in that, remember, limited population of all the patients who’ve had heart disease, but we can’t really afford to treat all of those patients. And therefore we’ll put in place some other clinical guidance. It’s all called clinical guidance or whatever, but it’s basically a form of rationing.

That can substantially be avoided if you avoid calamitous R&D costs.

That could be arguable, as drugs aren’t priced — in the US in any case — according to the cost of development. But you’ll never break through that barrier, Landray argues, until you start doing huge studies at relatively meager prices.

For Landray, this isn’t about empire building. If Protas can break the mold and essentially force the rest of the R&D world to adopt it, he’d gladly shut down a decade from now. Mission accomplished.

But first there’s a revolution to inspire.

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A Deeper Dive Into The CDC Reversal

A Deeper Dive Into The CDC Reversal

Authored by Jeffrey Tucker via The Brownstone Institute,

It was a good but bizarre day when the CDC finally…

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A Deeper Dive Into The CDC Reversal

Authored by Jeffrey Tucker via The Brownstone Institute,

It was a good but bizarre day when the CDC finally reversed itself fundamentally on its messaging for two-and-a-half years.

The source is the MMWR report of August 11, 2022. The title alone shows just how deeply the about-face was buried: Summary of Guidance for Minimizing the Impact of COVID-19 on Individual Persons, Communities, and Health Care Systems — United States, August 2022

The authors: “the CDC Emergency Response Team” consisting of “Greta M. Massetti, PhD; Brendan R. Jackson, MD; John T. Brooks, MD; Cria G. Perrine, PhD; Erica Reott, MPH; Aron J. Hall, DVM; Debra Lubar, PhD;; Ian T. Williams, PhD; Matthew D. Ritchey, DPT; Pragna Patel, MD; Leandris C. Liburd, PhD; Barbara E. Mahon, MD.”

It would have been fascinating to be a fly on the wall in the brainstorming sessions that led to this little treatise. The wording was chosen very carefully, not to say anything false outright, much less admit any errors of the past, but to imply that it was only possible to say these things now. 

“As SARS-CoV-2, the virus that causes COVID-19, continues to circulate globally, high levels of vaccine- and infection-induced immunity and the availability of effective treatments and prevention tools have substantially reduced the risk for medically significant COVID-19 illness (severe acute illness and post–COVID-19 conditions) and associated hospitalization and death. These circumstances now allow public health efforts to minimize the individual and societal health impacts of COVID-19 by focusing on sustainable measures to further reduce medically significant illness as well as to minimize strain on the health care system, while reducing barriers to social, educational, and economic activity.

In English: 

everyone can pretty much go back to normal.

Focus on illness that is medically significant. Stop worrying about positive cases because nothing is going to stop them. Think about the bigger picture of overall social health. End the compulsion. Thank you. It’s only two and a half years late. 

What about mass testing?

Forget it:

“All persons should seek testing for active infection when they are symptomatic or if they have a known or suspected exposure to someone with COVID-19.”

Oh. 

What about the magic of track and trace?

“CDC now recommends case investigation and contact tracing only in health care settings and certain high-risk congregate settings.”

Oh. 

What about the unvaccinated who were so demonized throughout the last year? 

“CDC’s COVID-19 prevention recommendations no longer differentiate based on a person’s vaccination status because breakthrough infections occur, though they are generally mild, and persons who have had COVID-19 but are not vaccinated have some degree of protection against severe illness from their previous infection.”

Remember when 40% of the members of the black community in New York City who refused the jab were not allowed into restaurants, bars, libraries, museums, or theaters? Now, no one wants to talk about that. 

Also, universities, colleges, the military, and so on – which still have mandates in place – do you hear this? Everything you have done to hate on people, dehumanize people, segregate people, humiliate others as unclean, fire people and destroy lives, now stands in disrepute. 

Meanwhile, as of this writing, the blasted US government still will not allow unvaccinated travelers across its borders! 

Not one word of the CDC’s turgid treatise was untrue back in the Spring of 2020. There was always “infection-induced immunity,” though Fauci and Co. constantly pretended otherwise. It was always a terrible idea to introduce “barriers to social, educational, and economic activity.” The vaccines never promised in their authorization to stop infection and spread, even though all official statements of the CDC claimed otherwise, repeatedly and often. 

You might also wonder how the great reversal treats masking. On this subject, there is no backing off. After all, the Biden administration still has an appeal in process to reverse the court decision that the mask mandate was illegal all along.

“At the high COVID-19 Community Level,” the CDC adds, “additional recommendations focus on all persons wearing masks indoors in public and further increasing protection to populations at high risk.”

The problem from the beginning was that there never was an exit strategy from the crazy lockdown/mandate idea. It was never the case that they would magically cause the bug to go away. The excuse that we would lock down in wait for a vaccine never made any sense. 

People surely knew early on of the social, economic, and cultural devastation that would ensue. If they did not, they never should have been anywhere near the control switches of public health. Badges and bureaucracies do not terrify a virus destined to spread to the whole planet. And not one person with even the most casual passing knowledge of coronaviruses could have sincerely believed that a vaccine would magically appear to achieve something never before achieved in the whole history of medicine. 

When the Great Barrington Declaration appeared on October 4, 2020, it caused a global frenzy of fury not because it said anything new. It was merely a pithy restatement of basic public-health principles, which pretty much instantly became verboten on March 16, 2020, when Fauci/Birx announced their grand scheme. 

The GBD generated mania because the existing praxis was based on preposterously unproven claims that demanded that billions of people buy into complete nonsense. Sadly many did simply because it seemed hard to believe that all world regimes but a handful would push such a damaging policy if it was utterly unworkable. When something like that happens – and there never was the hope that it could work – the regime imperative becomes censorship and shaming of dissent. It’s the only way to hold the great lie together. 

So finally, nearly two years later the CDC has embraced the Great Barrington Declaration rather than doing a “quick and devastating takedown” as Francis Collins and Anthony Fauci called for the day after its release. No, they had to try out their new theory on the rest of us. It did not work, obviously. For the authors of the GBD, they knew from the time they penned the document that it was a matter of time before they were vindicated. They never doubted it. 

Dr. Rajeev Venkayya is widely credited with coming up with the idea of lockdowns while he was working for the Bush administration back in 2005. He had no training at all in public health or epidemiology. He later marveled that it fell to him, a young desk-dwelling White House bureaucrat, to “invent pandemic planning.” Maybe he should have demurred that day that George W. Bush asked him to lead the charge to inaugurate a new war on pathogens. 

Somehow his views gained converts, among whom was Bill Gates, the foundation for whom he worked for years. The rest is history. 

In April 2020, Venkayya called me to explain why I needed to stop attacking lockdowns. He said that the planners need a chance to make their scheme work. 

On the phone, I asked the same question over and over: where does the virus go? The first two times, he did not respond. I pressed and pressed. Finally he said there will be a vaccine. 

It’s hard to appreciate just how preposterous that sounded at the time, and I said something along those lines: it would be a medical miracle never before seen to have a shot for a coronavirus that was sterilizing against wild type and all inevitable mutations, and to do it in a reasonable time so that society and economy had not completely fallen apart. 

The whole approach was clearly milliennarian at best and utter madness at worst. And here I was, in the thick of global lockdowns, on the phone with the architect of the whole idea, an idea that had reduced billions to servitude, wrecked schools and churches, and sent communities and countries into complete upheaval. I wondered at the time what it would be like to be Dr. Venkayya that day. After all this ended in disaster, would he take responsibility? His LinkedIn profile today says otherwise: he is prepared to “tackle current and future epidemic & pandemic threats as the CEO of Aerium Therapeutics.”

There never was an exit strategy from lockdowns and mandates but they eventually did find an exit nonetheless. It came in the form of a heavily footnoted and opaquely written reversal, published by the main bureaucracy responsible for the disaster. It amounts to a repudiation without saying so. And thus does the great experiment in mass compulsion come to an intellectual end. If only the carnage could be cleaned up by another posting on the CDC’s website. 

By the way, the Biden administration has extended the declaration of Covid emergency. And my unvaccinated friends in the UK still can’t board a plane to come for a visit. 

All of this gives rise to the great question: what was the point? Maybe it was all a mistake and now it is gone forever but that’s unlikely. The intellectuals who pushed this project on the world have a view of the world that is fundamentally ill-liberal. They differ among themselves on the details but the general approach is technocratic central planning rooted in deep suspicion of basic tenets of freedom. 

How many people on the planet have now been acculturated to top-down control, socialized to live in fear, accept whatever comes down from above, never to question an edict, and expect to live in a world of rolling man-made disasters? And was that the point after all, to cultivate low expectations for life on earth and relinquish the soul’s desire for a full and free life? 

Tyler Durden Thu, 08/18/2022 - 09:49

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Japan Wants People To Drink More Alcohol As Generational Trend Cuts Tax Haul

Japan Wants People To Drink More Alcohol As Generational Trend Cuts Tax Haul

In some sort of Bizarro World scenario, declining alcohol consumption…

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Japan Wants People To Drink More Alcohol As Generational Trend Cuts Tax Haul

In some sort of Bizarro World scenario, declining alcohol consumption is causing alarm in the halls of Japanese government, as the trend is putting a big dent in the country's tax haul.

Average adult alcohol intake dropped from 100 liters a year in 1995 to 75 liters in 2020. Meanwhile, alcohol taxes declined from providing 3% of Japan's tax revenue in 2011 to 2% in 2020.

As the Financial Times explains, much of the trend can be attributed to demographics:

A fall in the total volume of alcohol consumed in Japan was inevitable once the indigenous population began to shrink over a decade ago and the proportion of citizens aged over 65 increased to more than a quarter of the country eight years ago. 

Reflecting a worldwide phenomenon, Japan's younger generations aren't drinking as much as their parents and grandparents did. 

The general downtrend gained steam when the Covid-19 pandemic disrupted lifestyles. Restaurants and bars closed or limited their operations, and people socialized less and shifted to working from home. "Many people may have come to question whether they need to continue the habit of drinking with colleagues to deepen communication,” a tax official told the Japan Times.  

The drop in revenue from 2018 to 2020 was the largest in 31 years. Taxes took a big hit in 1989 with a major change in Japan's Liquor Tax Law. 

Fear not -- having admitted it has an alcohol problem, Japan's tax agency will no longer sit idle while sobriety insidiously spreads throughout the population. A government campaign is afoot to encourage people to hit the bottle. 

The first phase of the drinking drive is a contest called "Sake Viva!", which asks Japanese citizens between the ages of 20 and 39 to come up with fresh ideas for juicing the country's alcohol business. In addition to seeking "new products and designs" and new sales methods, the tax agency also wants strategies to encourage people to drink at home, reports The Guardian

After winners are named at a gala in November, the tax office plans to promote the adoption of the winning ideas by alcohol-related businesses. Japan's health ministry isn't participating in the contest, but said it trusted the ensuing campaigns would emphasize drinking only "the appropriate amount of alcohol." 

Tyler Durden Thu, 08/18/2022 - 10:00

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