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Omicron, Interest Rate Concerns May Continue To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to see further downside after getting the New Year off to a rough start last week.

Concerns about the economic impact of the Omicron variant of the coronavirus and the likelihood the Federal Reserve will raise interest rates in the near future may contribute to continued weakness on Wall Street.

Treasury yields have moved sharply higher in recent sessions, with the yield on the benchmark ten-year note reaching its highest levels since January of 2020.

The jump in yields comes amid a more hawkish tone from the Fed, as the minutes of the central bank's latest meeting indicated it plans to accelerate monetary policy normalization.

Worries about higher rates have led to particular weakness among high-growth tech stocks, dragging the tech-heavy Nasdaq down to its lowest closing level in almost three months last Friday.

Overall trading activity may be somewhat subdued, however, as trades look ahead to key inflation data as well as a Senate hearing on Fed Chair Jerome Powell's renomination.

Stocks fluctuated over the course of the trading day on Friday but finished the session mostly lower. While the Dow ended the day little changed, the S&P 500 and the Nasdaq closed lower for the fourth consecutive session.

The major averages all closed in negative territory, with the tech-heavy Nasdaq showing a particularly steep drop. The Nasdaq tumbled 144.96 points or 1 percent to 14,935.90, while the S&P 500 fell 19.02 points or 0.4 percent to 4,677.03 and the Dow edged down 4.81 points or less than a tenth of a percent to 36,231.66.

For the first week of the New Year, the Nasdaq saw its worst week since February of 2021, plunging by 4.5 percent. The S&P 500 also slumped by 1.9 percent, while the narrower Dow dipped by 0.3 percent.

The continued pullback on Wall Street came following the release of the Labor Department's closely watched monthly jobs report.

While the report showed much weaker than expected job growth in the month of December, the unemployment rate still fell by more than expected.

The report said non-farm payroll employment rose by 199,000 jobs in December after climbing by an upwardly revised 249,000 jobs in November.

Economists had expected employment to jump by 400,000 jobs compared to the addition of 210,000 jobs originally reported for the previous month.

Despite the weaker than expected job growth, the unemployment rate slid to 3.9 percent in December from 4.2 percent in November. The unemployment rate was expected to edge down to 4.1 percent.

With the bigger than expected decrease, the unemployment rate fell to its lowest level since hitting 3.5 percent in February of 2020.

Economists have indicated the report is not likely to alter the Fed's plans to accelerate monetary policy normalization.

The minutes of the latest Fed meeting, released earlier this week, suggested the central bank could begin raising interest rates and shrinking its balance as soon as mid-March in an effort to combat elevated inflation.

"This latest jobs report will comfort the Fed into thinking its hawkish policy pivot is justified with the economy making progress toward maximum employment," said Gregory Daco, Chief U.S. Economist at Oxford Economics.

He added, "The Fed will continue signaling earlier and faster tightening of monetary policy to prevent inflation expectations from becoming unanchored and to ensure financial conditions gradually tighten."

Traders subsequently seem concerned the Fed will be raising rates at a time of slowing economic growth as a result of the Omicron variant of the coronavirus.

Housing stocks moved sharply lower amid concerns about the impact of higher interest rates, resulting in a 3.3 percent nosedive by the Philadelphia Housing Sector Index.

Substantial weakness was also visible among semiconductor stocks, as reflected by the 2.9 percent plunge by the Philadelphia Semiconductor Index.

Networking and biotechnology stocks also saw considerable weakness, contributing to the steep drop by the tech-heavy Nasdaq.

On the other hand, airline stocks moved sharply higher on the day, driving the NYSE Arca Airline Index up by 2.9 percent.

Steel, banking and energy stocks also saw notable strength, with the continued advance by energy stocks coming despite a pullback by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are slipping $0.34 to $78.56 a barrel after falling $0.56 to $78.90 a barrel last Friday. Meanwhile, after rising $8.20 to $1,797.40 an ounce in the previous session, gold futures are edging down $4.20 to $1,793.20 an ounce.

On the currency front, the U.S. dollar is trading at 115.35 yen versus the 115.56 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1301 compared to last Friday's $1.1360.

Asia

Asian stocks ended mixed on Monday as the Omicron Covid-19 variant continued to spread rapidly around the world and traders pondered the possibility of the U.S. Federal Reserve's faster than expected tapering and rate hikes.

Traders also waited for U.S. inflation data as well as Fed Chair Jerome Powell's hearing in the Senate this week for additional clues about the U.S. central bank's stance about rate hikes. Investors are worried that Powell might make hawkish comments about inflation in the hearing.

Japanese markets were closed for a holiday. Chinese shares eked out modest gains after the country's Securities Regulatory Commission said it would adopt various measures to avoid volatility and "firmly" prevent big fluctuations.

The benchmark Shanghai Composite Index rose 13.98 points, or 0.4 percent, to 3,593.52, while Hong Kong's Hang Seng Index ended up 253.16 points, or 1.1 percent, at 23,746.54.

Australian markets finished marginally lower as total Covid-19 cases in the country surpassed 1 million, with more than half of them recorded in the past week.

Tech stocks declined amid worries of earlier than expected policy tightening by the Federal Reserve and ahead of U.S. inflation data due this week. Afterpay, Xero and Wisetech Global lost 2-3 percent.

Energy stocks extended gains for the second straight session, with Woodside Petroleum climbing 2.3 percent as oil prices continued to rise amid political instability in Kazakhstan.

Seoul stocks tumbled on U.S. rate hike concerns. The benchmark Kospi slumped 28.17 points, or 1 percent, to close at 2,926.72 amid selling by both institutions and foreign investors.

Chipmaker SK Hynix shed 2 percent, internet firm Kakao tumbled 3.4 percent and leading carmaker Hyundai Motor gave up 2.6 percent.

Europe

European stocks are mostly lower in cautious trading on Monday amid surging Covid-19 infections around the world and an increasingly uncertain interest rate outlook.

The overall number of coronavirus cases is fast approaching 307 million amid the spread of the Omicron variant of the virus across the globe.

The first U.S. rate hike could be in March, with Goldman expecting the Fed to raise borrowing costs at least four times by the end of 2022 versus the previous prediction of three rate hike.

While the U.K.'s FTSE 100 Index has edged down by 0.1 percent, the German DAX Index and the French CAC 40 Index are both down by 0.6 percent.

Technology consulting company Atos has moved sharply lower. The company issued its second profit warning in seven months, citing delays in customer deals and pressured margins at its hardware and software resales unit.

Rotork has also shown a notable move to the downside after announcing the appointment of Kiet Huynh as Chief Executive Officer.

On the other hand, Carige has soared after reports that BPER Banca, Italy's fifth-largest bank, improved its offer to prevail over rival suitor Credit Agricole Italia.

Skanska has also risen. The global construction and development has signed a contract with NJ TRANSIT to build the Portal North Bridge replacement in Hudson County, New Jersey, USA.

Sodexo S.A. has also climbed. The French food services and facilities management company said that it agreed to buy Frontline Food Services, doing business as Accent Food Services, to further accelerate its food transformation in North America.

Fintech firm Plus500 has also moved notably higher in London after saying its FY21 financial performance was ahead of market view.

TT Electronics has also risen. The provider of electronic components and manufacturing services has acquired the power and control business of Ferranti Technologies Ltd. from Elbit System UK Ltd. for 9 million pounds in cash.

German automaker BMW has also shown a strong move to the upside after Goldman Sachs upgraded its rating on the stock.

U.S. Economic Reports

The Commerce Department is scheduled to release its report on wholesale inventories in the month of November at 10 am ET. Wholesale inventories are expected to jump by 1.2 percent.

At 12 pm ET, Atlanta Federal Reserve President Raphael Bostic is due to participate in a conversation on the economic outlook before a Rotary Club of Atlanta meeting.

Stocks In Focus

Shares of Zynga (ZNGA) are soaring in pre-market trading after the online game maker agreed to be acquired by Take-Two Interactive (TTWO) for $12.7 billion in cash and stock.

Home healthcare services provider Apria (APR) is also seeing significant pre-market strength after agreeing to be acquired by Owens & Minor (OMI) for about $1.45 billion in cash.

On the other hand, shares of Lululemon (LULU) may come under pressure after the athletic apparel maker warned of fourth quarter results towards the low end of its guidance.

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