It is a new week in the financial markets, and one that begins very quietly.
There are only two somewhat interesting economic reports today. The first one is the retail sales number for October from Italy. The report came in at 0.1%, which is higher than the forecast. Of late, Italy has consistently outperformed the forecasts on most counts.
The second report we were looking forward to today was the November construction PMI from the United Kingdom, which at 55.5 was higher than the previous month.
Meanwhile, China’s most troubled (and once most popular) developer Evergrande Group is close to the expiration date of another 30-day grace period. In fact, the deadline for payment ($82.5 million in this case) is today.
Evergrande stated that it would not be able to pay its liabilities on time, which prompted the Chinese government to send a team to review the company’s finances and see if it is possible to raise enough funds to keep the company afloat.
For weeks now, Evergrande has been in an informal state of default, but its CEO has refused to admit to bankruptcy. The company’s stock is currently trading at its lowest level in 11 years.
Fears that other companies in the Chinese property development industry would follow Evergrande down this path remain strong, despite assurances from the People's Bank of China that the sector at large is not in danger.
In other news, more and more data seems to indicate that Omicron, the new Covid-19 variant, mostly causes mild symptoms. Thus, while it may be more contagious than Delta (which was already a variant with an alarmingly high rate of transmission), Omicron might be a lot safer since it doesn’t cause severe Covid-19 disease.
As a result, market sentiment today has improved. It is more risk-on than last week and safe havens like Treasury bonds are decreasing in value, in favor of riskier assets.
Crude oil, in particular, is climbing in value again on the prospect that Omicron will not pose a great danger to the world, thus keeping the demand for oil stable.
