Jamie Jemmeson
December 21, 2021

Omicron Weighs in on UK Sentiments

The CBI Industrial Orders Index edged lower last month above the consensus forecasts and close to record highs. However, given the current COVID-19 environment, this could prove interesting. Additionally, there are further concerns over the near-term spending outlook with reports of a sharp decline in the number of shoppers in London over the weekend. 

The ongoing political and Omicron situations continue to weigh in on the Sterling as uncertainties remain. The UK government did not announce new restrictions on Monday, however, unease over the risks is high.

Overnight, the latest Lloyds Bank Business Barometer showed that the economy has begun to feel the impact of Omicron this month, alongside upward pressure on prices and staffing costs. The survey also showed that it held steady at 40% – well above its long-run average of 28%. However, responses weakened in the second week when the impact of Omicron became clear, and sentiments fell to 32%.

Dollar Trades in Narrow Ranges as Omicron Hits Economic Projections

Financial markets seem to have moved into a consolidation phase yesterday which saw the US Dollar trading in narrow ranges against most major currencies. Focus turned to the economic impacts as the first Omicron-related death was reported on Monday – accounting for almost three-quarters of all confirmed COVID-19 cases in the US. 

President Joe Biden received a blow to the Democrat’s spending plans on Monday as Senator Joe Manchin said he would not support the administration’s $1.75 tn domestic spending bill. Analysts debated that a breakdown of the fiscal package would mean less stimulus and weaker growth.

It’s a quiet day on the economic calendar with no significant data to release with directions likely to be guided by Omicron headlines.

Could Omicron Result in a German Contraction? 

Much like its major rivals, there was very little in the way of the Eurozone data to provide direction for the Euros yesterday. The data released from the single market showed that the Eurozone’s current account surplus read at €18.1 bn versus an expectation of €20.3 bn and a previous reading of €17.6 bn. The reading shows a slight widening in the difference between the value of imported and exported goods versus October’s but did little to provide the Euro with direction.

A report from the German Central Bank stated that the German economy may contract in Q4 2021 as the spread of Omicron forced German officials to implement new restrictions. It also indicated that German inflation may remain above 4% in the next few months as we transition in 2022.

Looking ahead to today, there is very little in key data releases. We have already seen the German GfK Consumer Climate Index read below expectation at -6.8 versus -2.6 and -1.8 previously. This afternoon, we have the release of the European Consumer Confidence Index which is expected to read at -8 versus -7.

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