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Omicron cases, inflation worries, and OPEC meets. 

Record

The U.S. reported 1 million Covid-19 cases on Monday as the omicron variant continues to run rampant. There is increasingly solid evidence that the new strain causes less severe infections with data suggesting hospitalization numbers are decoupled from infections. The risk to the economy continues to be worker absences and government measures to control the spread. Analysts are warning that China sticking to its Covid-zero strategy amid the spread of the virulent strain will lead to continued supply-chain problems this year. 

Taking a position

Yesterday’s moves in the Treasury market which saw the 10-year benchmark record its worst start to the year since 2009 seem to be indicating that traders don’t see the end of inflationary pressures any time soon. Market pricing now suggests Federal Reserve rate liftoff as soon as May, with a tight labor market possibly exacerbating cost increases. With the 10-year yield holding over 1.63% this morning, investors will be keeping a close eye on incoming data such as today’s job-openings numbers and Friday’s payrolls report.

Supplies 

One of the biggest short-term drivers of inflation is energy costs, so there will be close attention on today’s OPEC+ meeting. Crude posted it biggest annual price gain since 2009 last year, and is trading above $76.50 a barrel this morning, so it is little wonder that delegates are on track to ratify a 400,000 barrel per day production increase today. Yesterday the OPEC+ Joint Technical Committee cut its estimate for the global crude surplus in the first three months of 2022 by 25%, saying it sees the impact from omicron as “mild and short-lived.” The possible increase in output comes as some producers are showing signs they are struggling to meet quotas. 

Markets rise

Global equities are extending their strong start to the year, with some markets playing catch-up this morning after yesterday’s holiday. Overnight the MSCI Asia Pacific Index added 0.9% while Japan’s Topix index closed 1.9% higher as the yen dropped to the weakest level against the dollar in five years. In Europe the Stoxx 600 Index had gained 0.8% by 5:50 a.m. Eastern Time with travel companies the best performers. S&P 500 futures pointed to plenty of green at the open. Bitcoin and gold rose. 

Coming up...

U.S. December ISM manufacturing data is at 10:00 a.m. with November JOLTS job-openings numbers also at that time. Auto-sales data for December is expected to show the continued effects of the semiconductor-chip shortage on production. Federal Reserve Bank of Minneapolis President Neel Kashkari speaks later. MillerKnoll Inc. and SMART Global Holdings Inc. report results. 

What we've been reading

Here's what caught our eye over the last 24 hours.

And finally, here’s what Joe’s interested in this morning

Every four years, the pace of new Bitcoin issuance gets cut in half, in a cycle that enthusiasts refer to as the "halving."  And that’s a cue for those who imagine that because the new supply from miners gets cut in half, that axiomatically the price of Bitcoin must go up. We've had these arguments a million times here before, so they're not worth rehashing. But it is worth pointing out that by any standard, the most recent halving cycle saw the worst performance yet.

From the 2017 peak to the 2021 peak, Bitcoin only gained 253%. Not terrible over four years, but not incredible.

However from the peaks in 2013 to 2017, the rally was around 1600%. Very impressive.

And from the early days to the 2013 peak, the gain was around 2,000,000%. Extremely good!

So either the halving cycle is nonsense, or it's rapidly fading as driver of huge, outsized returns. After all, Bitcoin has underperformed Apple in the last year.

Take your pick.

Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart 

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