LIVE MARKETS Markit PMI: Omicron throws monkey wrench into U.S. business activity

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MARKIT PMI: OMICRON THROWS MONKEY WRENCH INTO U.S. BUSINESS ACTIVITY (1041 EST/1541 GMT)

The U.S. economy kicked off 2022 with a deceleration in business activity as it approached the hazardous turns and slippery conditions caused by Omicron.

Global financial information firm IHS Markit’s advance, “flash” purchasing managers’ index (PMI) for manufacturing (USMPMP=ECI) and services (USMPSP=ECI) sectors both fell more than expected, to respective readings of 55 and 50.9.

Combined, the indexes result in the lowest composite PMI print in 18 months.

A PMI reading over 50 signifies increased activity over the previous month.

Spiking infections due to the highly contagious Omicron COVID-variant are the main culprit for sending customer-facing services activity tumbling perilously close to contraction territory.

Output stalled as the new wave of COVID infections exacerbated existing supply and labor shortages.

“Soaring virus cases have brought the US economy to a near standstill at the start of the year, with businesses disrupted by worsening supply chain delays and staff shortages, with new restrictions to control the spread of Omicron adding to firms’ headwinds,” writes Chris Williamson, chief business economist at IHS Markit.

But the good news is that Omicron doesn’t appear to be hitting demand so much as adding complications to the already tangled supply chain.

“Output has been affected by Omicron much more than demand, with robust growth of new business inflows hinting that growth will pick up again once restrictions are relaxed.” Williamson adds.

Hinting at another silver lining, cost inflation pulled back to its slowest pace since March, while selling prices for goods and services registered the third-fastest rate on record, going back to October 2009.

Wall Street is sharply lower in morning trading extending its biggest weekly percentage plunge since March 2020, when measures to contain the new pandemic sent the economy into its steepest and most abrupt downturn in history.

The S&P 500 (.SPX) is on track to confirm a correction. It is last down 10.1% from its January 3 finish.

(Stephen Culp)

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WALL STREET TUMBLES AS WORRIES PILE ON (0944 EST/1444 GMT)

Wall Street’s three major indexes tumbled on Monday with Nasdaq down 2% leading the declines as the prospect of a Russian attack on Ukraine roiled global markets ahead of a Federal Reserve policy meeting later this week.

Also on investors minds was a sell off last week with the main indexes ending sharply lower Friday as Netflix shares set the tone with a plunge after a weak earnings report, capping the S&P 500 and Nasdaq’s biggest weekly percentage drops since the onset of the COVID-19 pandemic in March 2020. read more

NATO said on Monday it was putting forces on standby and reinforcing eastern Europe with more ships and fighter jets, in what Russia denounced as an escalation of tensions over Ukraine. President Joe Biden has begun considering options for boosting U.S. military assets in the region, senior administration officials said. read more

This week’s Fed meeting is expected to shed more light on the central bank’s plans for policy tightening including interest rate hikes.

The S&P’s 11 major sectors are in the red with defensives such as consumer staples (.SPLRCS) and utilities (.SPLRCU) losing the least ground, while growth stocks and cyclicals are among leading decliners with consumer discretionary (.SPLRCD) and financials (.SPSY) sliding.

Here is your opening snapshot:

(Sinéad Carew)

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DOW INDUSTRIALS: SLIP TURNS TO SLIDE (0900 EST/1400 GMT)

After ending January 4 at a record close of 36,799.65, the Dow Jones Industrial Average (.DJI) has now collapsed nearly 7% in just 12 trading days read more .

Much of this decline has come with a current six-day, near-6%, losing streak. And with CBT e-mini Dow futures reversing an overnight gain of 253 points, and now pointing to a loss of around 250 points at the open, the blue-chip average may threaten a seventh-straight day of losses.

The Dow last fell seven days in a row in February 2020, in the early stages of what would ultimately prove to be a 37% meltdown on a closing basis. The Dow last declined eight-straight days in June 2018.

Therefore, at least shorter-term, in terms of its streak, the DJI may be getting stretched to the downside.

Of note, the DJI ended Friday essentially right on its broken weekly log-scale resistance line from 1929, which has been acting as support since it was overwhelmed early last year. However, with opening weakness, the DJI will be below this line, which will ascend to around 34,300 this week:

Additional Dow support can be found at its mid-to-late 2021 troughs at 34,006, 33,613 and 33,271.

The 23.6% and 38.2% Fibonacci retracements of the entire March 2020 to January 2022 advance are found at 32,530 and 29,794. The Dow’s February 2020 peak was at 29,568.

In the event of sudden strength, which puts the DJI back over the line from 1929, it will still have work to do to repair its recent damage. This, given that its 40-week and 10-week moving averages are now resistance, and ended at 35,030 and 35,511 last Friday.

(Terence Gabriel)

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Terence Gabriel is a Reuters market analyst. The views expressed are his own

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