CEO DailyCFO DailyBroadsheetData SheetTerm Sheet

Global stocks rebound as investors shrug off the Omicron risk. Crypto pain continues

December 6, 2021, 10:08 AM UTC

Good morning, Bull Sheeters.

It’s not a Manic Monday, but the markets are performing much better than they were on Friday. I know, low bar.

U.S. futures have been steadily higher all morning, following Europe’s lead. That comes as we get more data on Omicron being more infectious yet packing a somewhat weaker punch. We need to mention the necessary caveat here: it’s way too early to pronounce Omicron a minor threat—or a ticking time-bomb.

Speaking of tick, tick, tick… Bitcoin is ticking down again this morning—Ethereum, Dogecoin, and Shiba Inu are faring even worse—following yet another volatile weekend of trading. Bitcoin is trading below its 200-day moving average, as I type, leading markets commentators to conclude there could be more pain to come.

In today’s essay, I look at the question of whether Omicron could prove to be a deflationary force. And, vinophiles, today’s Postscript is for you.

But first, let’s see what else is moving markets.

Markets update

Asia

  • Asian is the big outlier today. The markets out east began the week on a losing note with the Hang Seng off roughly 1.8% on the day.
  • China Evergrande is back in the news… shares were off more than 17% at one point after the troubled real estate developer copped it might not have the funds to meet its repayment obligations.
  • The World Health Organization says Omicron has now been detected in 38 countries—in all six WHO regions. It’s also in at least 15 U.S. states, the CDC saysDelta still rules, but Omicron is living up to its “variant of concern” label.

Europe

  • The European bourses were rebounding out of the gates, bouncing back from Friday’s sell-off. Two hours into the session, the benchmark Stoxx Europe 600 was up 0.6%. Energy, travel and leisure and construction stocks were leading the way higher.
  • Shares in Roche were up nearly 0.8% at the open after the Swiss drugmaker announced it’s developed a rapid antigen test that will tell you whether you have COVID or something more benign, like the common flu.

U.S.

  • U.S. futures are on the rise. That’s after the S&P 500 fell 1.2% last week with bank and communications services stocks performing particularly poorly. Even worse: the Russell 2000 fell nearly 4% last week.
  • If you thought Omicron would turbo-charge tech growth-stocks, think again. Cathie Wood’s ARK Innovation ETF, which holds big stakes in Tesla, Coinbase Global and Square, to name a few—tumbled nearly 5.5% on Friday amid a larger sell-off in tech stocks. It’s flat in pre-market trading this morning.
  • What’s on the calendar this week? There’s still a trickle of corporate earnings. Look out for Costco Chewy and Oracle, all on Thursday. On Friday, we get the latest CPI data, which will tell us a bit more about the inflation picture. There are some on Wall Street wondering if we’ll see the first 7% print on CPI, which we haven’t seen since the Reagan years.

Elsewhere

  • Gold is down, trading below $1,780/ounce.
  • The dollar is up, approaching a 17-month high.
  • Crude is bouncing back with Brent above $71/barrel this morning.
  • Crypto had a rough weekend. Bitcoin tumbled more than 20% at one point before recovering some. It trades at roughly $48,200.

***

Will Omicron be deflationary?

And, no, I’m not referring to your slumping portfolio.

One of the big reasons we’re seeing such crazy inflation this year is because of what happened last year. Lockdowns combined with trillions in stimulus goodies combined to create a historic disruption in supply and demand. (The great migration out of cities and ports-backlogs also added rocket fuel to everyday pricing.) Add it all up and you get what Paul Donovan, UBS chief economist calls, the great “supply-demand imbalance.”

It is Donovan who asks the question whether Omicron could possible be a deflationary force in the global economy. What’s he getting at?

Well, he reckons Omicron could prove to be inflationary should governments around the world dip back into last year’s playbook—that is, introduce tough lockdown measures that would bar travel and close shops and restaurants to stop the seemingly more contagious variant in its tracks.

“If governments do not repeat their generous welfare support of 2020, Omicron will have a deflationary bias,” he adds. “Disruption to employment without increased welfare support would hurt demand. If last year’s savings have already been spent, there is no cushion for demand as restrictions weaken employment. Fear of the virus, or more likely fear of unpredictable government restrictions, may weaken demand for certain services (e.g. travel), which would lower prices in those sectors.”

Goldman Sachs, for one, sees a more complicated picture. Joseph Briggs, a Goldman economist, and his team, issued a research note over the weekend in which they revise lower U.S. growth on account of Omicron. They see the new variant as akin to Delta in that it will likely push back the full reopening of the economy.

They reckon it could delay people feeling comfortable about returning to the office (presumably, that would be deflationary) and “exacerbate goods supply shortages if virus spread in other countries necessitates tight restrictions” (inflationary).

“We see mixed implications for inflation,” they write. “Reduced demand for virus-sensitive services such as travel could have a disinflationary impact in the near term, but prior virus waves suggest that such pressures would be temporary, and reverse as demand recovers. In contrast, further supply chain disruptions due to Omicron or further delays in the recovery of labor supply could have a somewhat more lasting inflationary impact.”

So, there’s nothing definitive we can say about the Omicron effect—if there will be any—on inflation. We can only say it will add uncertainty to the Wall Street models. That’s not good for your portfolio.

Postscript

My father-in-law has a collection of wine that dates to the 1960s. The only problem: much of it should have been polished off way back in the 1960s.

Yesterday, I found one of these old-timers in my very modest wine cache. It was a Nebbiolo, the same grape that gives us the big-bodied red, Barolo. I’m sure there are plenty of Bull Sheet readers who have a special 20-year-old Barolo in their collection, which they’ll open up the next time the Dow jumps 1,000 points in a trading day.

The label on this particular bottle was mostly torn, so I couldn’t quite make out the year. But judging by the others in my father-in-law’s collection (this is the only one that made it south, to our place in Rome), I’m guessing it’s quite a bit older than me. Another important note: the B-word (Barolo) is nowhere on the label. This looks like a bog-standard Nebbiolo from the mid 1960s, which means it probably should have been consumed around the time of the first moon landing.

Here’s what it looks like.

Original photo: Bernhard Warner

Filled with doubts, I held it up to the light. Unlike the other bottles in my father-in-law’s vinegar collection, it looked like it just might be drinkable. What do I mean by that? Well, for starters, on close inspection you can see (through all the dust) it’s still retained its ruby-red color. Just as promising: it wasn’t fully of mucky sediment floating around.

I shot a message to Eric J. Lyman, my go-to wine expert, whose byline appears in Fortune from time to time. He shot me back some quick instructions in how to handle really old vintages. I thought they were worth sharing here in case any of you find yourself in a similar situation.

First, he notes, the cork will probably disintegrate. Then he wrote:

If you have access to and know how to use an Ah-so cork screw, use that. If not, try to get a regular corkscrew as deep into the cork as possible, even if it means you lose leverage in pulling it up. If that happens, put the bottle on the floor between your feet and pull straight up with brute force. Try not to wiggle the corkscrew or pull at an angle. Straight up.

Got it. Don’t wiggle. Straight up. Use the floor… Take shoes off?

Next, he wrote:

Also, as soon as you open it the clock is ticking. It’ll age amazingly fast once it’s in contact with the air. Don’t decant it or wait to try it. Do everything you can to limit exposure to the air. Small glasses, pour and drink it right away. It’s possible that the first sip will be drinkable and 60 seconds later it’ll be vinegar.

Got it. Drink fast. Repeat.

“Let me know how it goes!,” he added.

I think I’m going to wait until Christmas—what’s a few more weeks for a bottle that’s pushing 60?— before opening this one. I’ll give it a whirl with my father-in-law. With shoes on.

***

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.

Today's reads

Citigroup sees Didi’s delisting as ‘an isolated case’, and calls the selloff in U.S.-listed China tech shares a ‘buying opportunity’Fortune

BuzzFeed could have raised hundreds of millions of dollars in a SPAC. Instead it got just over $16 million thanks to redemptions. Here’s how they workFortune

Inside the Rolls-Royce plane that just smashed the electric-flight speed recordFortune

Market candy

-60%

Meme stock bulls, here's some bad news. The one-two-punch of Omicron and Fed-tapering has done on a job on the buzzy social-media fueled stocks in recent weeks. "Nearly every parabolic meme stock advance in the last year has completely reversed course, with the notable exception of the King and Queen of memes: GameStop and AMC," writes Carlie Bilello of Compound Advisors. But even GME and AMC are in rough territory, he notes, as they both trade below their 200-day moving average, and are both down more than 60% from their 2021 highs.

This is the web version of Bull Sheet, a no-nonsense daily newsletter on what’s happening in the markets. Sign up to get it delivered free to your inbox.