The outlook for the US economy is suddenly much bleaker.
Investors around the world sold stocks and oil prices fell sharply on Monday as Omicron cases increased and governments imposed anti-virus measures that could hamper economic growth.
But the United States faces a potential second blow after Senator Joe Manchin, a Democrat, said on Sunday he would not vote for President Joe Biden’s economic and climate plan.
Dow futures fell 370 points – or more than 1% – at 6:45 a.m. ET on Monday, while benchmark Brent crude was down about 3% to $ 71 a barrel. The main stock indexes in Europe and Asia fell around 2%.
“Global markets are anticipating (…) greater concerns about growth following the weekend’s news about Omicron. The gloomy outlook for the US tax package could also play a role,” said Mohamed El-Erian, chief economic advisor at Allianz. Monday on Twitter.
For an overview of Omicron, look to Europe: The Netherlands is under strict lockdown. In the UK, the government has asked people to work from home and has not ruled out further restrictions before Christmas. Germany, Denmark and Ireland are also taking steps to stem the variant.
“Even if booster shots are effective in reducing medical risks, a rapid spread of Omicron could still overload healthcare systems and force countries to follow the Netherlands and adopt more economically damaging restrictions.” said Holger Schmieding, chief economist at Berenberg.
If that were to happen, both the eurozone and the UK could see their economies contract by 1% in the first quarter of 2022, compared to the last three months of this year, he added. Germany, the region’s largest economy, is already on the brink of recession.
The United States may only be a few days or weeks behind Europe. “It’s going to take over,” Anthony Fauci, the nation’s leading infectious disease expert, said of Omicron on CNN’s “State of the Union”.
The fast-spreading variant threatens to add pressure on already stretched supply chains and exacerbate inflation. If American consumers cut back on shopping, dining and travel, it could hurt the economy as well.
Biden lobbied a $ 1.75 trillion bill that includes initiatives such as universal kindergarten for ages 3 and 4, child care assistance, and tax credits for children, as well as a federally paid family and sick leave program.
To get the Build Back Better Act through Congress, Biden needs Manchin’s vote. But West Virginia balked at the cost of the legislation and expressed concerns that it could fuel already soaring inflation.
Still, most analysts expected Manchin to end up supporting the bill. This now appears to be a miscalculation.
Goldman Sachs told clients on Sunday it no longer assumed the legislation would pass through Congress after Manchin announced it was a “no.”
“Failure to pass BBB has negative implications for growth,” Goldman Sachs economists, led by Jan Hatzius, said in the research report.
Citing the “apparent disappearance” of Build Back Better, the Bank of Wall Street now expects GDP to grow at an annualized rate of 2% in the first quarter, against 3% previously.
Goldman Sachs also cut its GDP forecast for the second quarter to 3% from 3.5% and the third quarter to 2.75% from 3%. He pointed to the expiration of the child tax credit and the lack of spending in other areas that had been anticipated.
For investors, the wave of bad news could spell a brutal end to 2021.
“It looks a lot more like Halloween than Christmas,” Societe Generale analyst Kit Juckes wrote in a research note on Monday.
World’s second-largest economy cuts rates
China’s central bank has cut its main interest rate for the first time in 20 months, as authorities step up efforts to revive an economy that has been hit by pandemic-related restrictions, a housing crisis and a crackdown unprecedented against private enterprise.
The People’s Bank of China on Monday lowered its one-year prime lending rate (LPR) by 5 basis points to 3.8%, reports my CNN Business colleague Laura He. The LPR is the rate at which commercial banks lend to their best customers and it serves as the benchmark rate for other loans.
Although Monday’s rate cut is small, it is the first such measure since April 2020, when China slashed the LPR to boost its economy hit by Covid, which had just contracted for the first time. in over 40 years.
“This drop reinforces our view that authorities are increasingly open to lower interest rates amid economic headwinds,” Zhaopeng Xing, senior Chinese strategist at ANZ, said Monday in a research note. .
A lower borrowing rate can help lower borrowing costs for households and businesses and, in turn, encourage consumer spending and investment.
Unlike the West, Beijing had refrained from flooding the economy with stimulus packages during the pandemic, instead focusing on offering targeted support to small businesses.
China was the only major economy to record growth in 2020, but this year the country’s expansion was affected by several factors, forcing it to consider ways to provide support even as other major central banks did. are withdrawing their stimulus measures and raising their interest rates to fight inflation.
Flashback: Last week, the Bank of England became the first major central bank to raise interest rates since the start of the pandemic. The US Federal Reserve could follow with three rate hikes next year.
Spider-Man could be the year’s biggest box office hero
There is a small ray of hope for movie theaters.
‘Spider-Man: No Way Home’, Sony and Marvel’s latest Spider-Man adventure, opened this weekend and is set to become by far the biggest opening of the year, reports my CNN Business colleague Frank Pallotta .
It’s slated for a $ 130 million opening weekend in North America, according to industry expectations. The film grossed $ 50 million Thursday night – it’s the third-biggest opening Thursday of all time.
It’s a remarkable milestone in a pandemic, and it indicates that “No Way Home” will likely become the only Covid-era film to open on an opening weekend of over $ 100 million. That number could even be much lower than the film’s totals, some analysts say.
Shares of AMC Theaters climbed 20% after Thursday’s stellar preview was announced. But with the increase in Omicron cases, relief may be short lived.
“It means everything to theaters right now,” Shawn Robbins, chief analyst at Boxoffice.com, told CNN Business. “We’ve always emphasized how important every big movie has been to theaters and studios throughout the pandemic this year, but ‘No Way Home’ is the most important from a box office perspective so far. here.”
Nike and Micron announce their profits after the closing bell.
Coming tomorrow: revenues from General Mills, Rite Aid and BlackBerry.
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