Casting a shadow

Risk-off sentiment is taking the upper hand this morning as Omicron headlines fill up trading screens across the globe. The selloff began during the session in Asia, where the Hang Seng Index fell 2%, and then extended to Europe, where the EURO STOXX 50 slid nearly 3% by mid-morning trade. While things have since pulled off their lows, U.S., stock futures were off 2% at one point, and oil got hammered, with WTI crude futures slumping as much as 5.5% to $66.80/bbl.

Bigger picture: Traders are taking notice as Omicron fears and restrictions begin weighing on the economy. The Netherlands reimposed a strict lockdown on Sunday (see below), other European countries unveiled tough holiday restrictions, while China's central bank cut rates to counter a loss of economic momentum. Over in the U.S., schools across the country are once again transitioning to virtual instruction, businesses are feeling the drag of a massive labor/supply shortage exacerbated by the variant, and intensive care units in many cities are at or close to full capacity. President Biden is set to deliver remarks tomorrow on new steps to combat the country's fight against the Omicron wave.

The latest developments come after the Federal Reserve, the Bank of England and the ECB all moved towards tighter monetary policy last week in response to inflation concerns. The hawkish pivot leaves them without a full toolbox to handle Omicron's negative impacts on the economy, compounding fears for investors. Outbreaks, quarantines and possible lockdowns also have the potential to worsen the business environment, ranging from transportation logjams to factory closures.

Go deeper: "On the one hand, corners of the market are oversold," said Adam Crisafulli, founder of Vital Knowledge, though "the aggressive 'buy the dip' mentality, which proved so profitable for the last 1.5+ years, especially in the high-multiple corners of the market, was underwritten by a tidal wave of stimulus that is now receding." (10 comments)

With great power...

Omicron fears were not seen at the box office this weekend as Spider-Man came to the rescue. No Way Home, the latest movie in the web-slinging hero's franchise, drew a record-setting $253M in ticket sales domestically to notch the third-best opening weekend of all time. Remember, COVID-19 has cratered the theatrical industry in the pandemic era and the highest estimates for the film were pegged at around $150M.

By the numbers: While the movie is distributed by Sony (SONY) as part of that studio's deal for Spider-Man property, it shows the staying power of Marvel (DIS) content: The only two films that opened bigger domestically were Marvel's Avengers: Endgame ($357.1M) and Avengers: Infinity War ($257.7M). No Way Home's worldwide total was a stunning $587.2M, again third of all-time behind the two Avengers films. It only took one weekend for the movie to become the top grossing picture of 2021, while meme-stock AMC (AMC) soared 19% this past Friday amid strong early box office totals.

The new Spider-Man is benefiting from critical as well as monetary success, with strong reviews and the rare "A+" audience grade from industry tracker CinemaScore. Hardcore fans are also desperately afraid of spoilers, leading to an outsized effect on the opening weekend. A tweet from Sony Pictures even warned audiences that, "if you want to be extra safe, stop reading comments, mute keywords, and start staying off social media today!"

What to watch: More studios may reserve exclusive theatrical releases for only their biggest films in 2022, meaning theaters - and their investors - could see sluggish periods between tentpole films. Another emerging trend is the demographics at the box office, which is skewing towards younger audiences due to COVID concerns. Examples: More than 60% of the opening-weekend audience for Spider-Man: No Way Home were under the age of 34, while older moviegoers didn't show up for the recent release of Steven Spielberg's West Side Story, which underwhelmed at the box office despite two years' worth of anticipation. (7 comments)

That's all folks

President Biden has been dealt a severe blow to his economic agenda after West Virginia Senator Joe Manchin outright rejected the nearly $2T Build Back Better Plan. Negotiations had been underway for much of the past six months, but the latest disagreement means the bill is likely doomed unless his demands are met for a smaller, less sweeping package. The social and environment measure would extend the expanded child tax credit, create free preschool and provide $550B for tax breaks and spending aimed at curbing carbon emissions, among other initiatives.

Quote: "My Democratic colleagues in Washington are determined to dramatically reshape our society in a way that leaves our country more vulnerable to the threats we face," Manchin told Fox News Sunday. "I cannot take that risk with a staggering debt of more than $29T and inflation taxes that are real and harmful to every hard-working American at the gasoline pumps, grocery stores and utility bills with no end in sight."

Investors are watching how the political drama will spill into the markets, with many eyeing the Treasury landscape. The killing of the bill could lead to lower yields and a flatter curve, given slower growth and more moderate inflation expectations. Last month, economists at the White House forecast that the U.S. economy could lose 9% of GDP in 2022 if emergency programs aren't replaced with BBB or the separate $1T bipartisan infrastructure bill (which has since been passed and was signed by Biden on Nov. 15).

Analyst commentary: "We had already expected a negative fiscal impulse for 2022 as a result of the fading support from COVID-relief legislation enacted in 2020 and 2021, and without BBB enactment, this fiscal impulse will become somewhat more negative than we had expected," said Goldman Sachs chief U.S. economist Jan Hatzius. Specifically, the expiration of the child tax credit and no other new spending would cut the U.S. GDP growth forecast to 2% from 3% for the first quarter of 2022, to 3% from 3.5% in Q2 and to 2.75% from 3% in Q3. There is "still a good chance" Congress enacts a much smaller set of fiscal proposals, added Hatzius, or "retroactively extends the expanded child tax credit." (11 comments)

Dutch streets deserted

The Netherlands is heading into Christmas and the New Year under lockdown after the government imposed some of the toughest measures seen since 2020. The sudden shutdown was announced on Saturday evening as a "failure to act now [against Omicron] would likely lead to an unmanageable situation in hospitals," Prime Minister Mark Rutte said in a statement. "We have previously proven that we can handle a lot together. Together we will also overcome this period. I am absolutely convinced of that."

New restrictions: Restaurants, theaters, hairdressers, gyms, museums and other public places will be shuttered until at least Jan. 14. Households are recommended to receive no more than two visitors at home - from 13 years of age - per day, while gatherings outside are also limited to a maximum of two. Citizens should also stay 1.5 meters apart from each other and not visit more than one other household per day.

Meanwhile, primary schools, secondary schools, vocational schools, higher education, and after-school care are physically closed until at least January 9. There are some exceptions for emergency care for parents whose children are in crucial professions, while daycare will remain open for children up to 4 years old. There is also currently no ban on foreign travel, though warnings and advisories can change quickly, which can affect rules for those returning to the country.

Outlook: COVID-19 infections in the Netherlands dropped from record levels in recent weeks following a night-time lockdown that was put in place late last month. However, Omicron cases are spreading rapidly and officials believe it will become the dominant variant by the end of the year. While more than 85% of the Dutch adult population is vaccinated, less than 9% of adults have a booster shot (one of the lowest rates in Europe). (188 comments)

Today's Markets

In Asia, Japan -2.1%. Hong Kong -1.9%. China -1.1%. India -2.1%.
In Europe, at midday, London -1.1%. Paris -1.1%. Frankfurt -1.8%.
Futures at 6:20, Dow -1.1%. S&P -1.3%. Nasdaq -1.4%. Crude -3.6% at $68.16. Gold -0.4% at $1797.90. Bitcoin -2.2% at $46058.
Ten-year Treasury Yield -2 bps to 1.38%

Today's Economic Calendar

10:00 Leading Indicators

Companies reporting earnings today »

U.S. appeals court revives Biden's vaccine mandate for businesses.

New Zealand links young man's death to Pfizer (NYSE:PFE) COVID shot.

Disney (NYSE:DIS) and YouTube (GOOG) reach deal after licensing stand-off.

Oracle (NYSE:ORCL) plans to buy Cerner (NASDAQ:CERN) for 'mid 90's' per share.

BofA picks a stock for every sector for 2022 - Sector Watch.

GM (NYSE:GM) begins delivering electric Hummers and EV delivery vans.

Travel tech firm Mondee nears SPAC deal with ITHAX Acquisition (NASDAQ:ITHX).

JPMorgan (NYSE:JPM) to pay $200M to settle probes on employee communications.

BNP Paribas (OTCQX:BNPQY) sells U.S. unit Bank of the West for $16.3B