Markets fall after Biden's economic plan hits snag, Omicron uncertainties linger

SYDNEY (BLOOMBERG) - US equity futures, Asian stocks and crude oil fell on Monday (Dec 20) amid concerns about more Omicron-induced curbs and after a setback for President Joe Biden's economic agenda prompted Goldman Sachs Group to cut forecasts for US growth.

Goldman Sachs lowered its forecast for US economic growth after Senator Joe Manchin said on Sunday that he would not support the US$1.75 trillion (S$2.39 trillion) tax-and-spending plan that is the heart of President Biden's economic agenda.

The bank's economic research team cut next year's real gross domestic product forecast to 2 per cent from 3 per cent in first quarter, 3 per cent from 3.5 per cent in second quarter, and 2.75 per cent from 3 per cent in third quarter.

Mr Manchin's comments effectively killed Democrats' plans to pass the legislation as they begin an election year. The Build Back Better (BBB) Bill's enactment "had already looked like a close call and in light of Manchin's comments we are adjusting our forecast to remove the assumption that BBB will become law", Goldman's economists said in a report on Sunday.

"A failure to pass BBB has negative growth implications."

MSCI's gauge of Asia-Pacific equities was on track to fall for its sixth session in seven. Treasury yields dropped, gold edged higher and the US dollar held a jump from last Friday amid a mood of caution, as traders assessed the latest comments from Mr Manchin, who left Democrats with few options for reviving Mr Biden's agenda after rejecting the roughly US$2 trillion tax-and-spending package.

This comes as markets are grappling with a range of uncertainties while heading towards a holiday period when thinner trading volumes can exacerbate swings.

"Omicron remains a concern and cases are on the rise," said Mr Robert Schein, chief investment officer at Blanke Schein Wealth Management. "Investors should be prepared for Covid-19 to continue to be a main factor in market performance heading into 2022. After the bull run we've seen over the past 21 months, investors aren't as used to prolonged periods of volatility."

Global stocks retreated last week, in part on an outlook of diminishing central bank stimulus as officials pivot towards fighting inflation. Federal Reserve Governor Christopher Waller said a faster wind-down of the central bank's bond-buying programme puts it in a position to start lifting interest rates as early as March.