December PMIs offered us a glimpse of recovery — with U.S. factory activity ending 2020 at a six-year high while the German reading was the highest in almost two years and emerging markets broadly positive.

Yet as more countries retreat into prolonged lockdowns, we are likely to see more pain before gains.

Wall Street therefore suffered its worst first day of the year since 2016, and the VIX volatility index rose to a two-month high, momentum that’s broadly continuing this morning. As European shares open lower, shares in airlines are among the worst hit.

COVID news aside, markets are watching Tuesday’s increasingly close Georgia run-off election. If it sees the Democrats flipping both seats, it will disrupt what markets view as a delicate political balance in Washington DC; a larger spending package immediately becomes more likely, potentially sending 10-year Treasury yields above 1%.

Chinese markets meanwhile continued to roar higher, with blue-chip shares at 5-1/2 year highs, amid expectations of more stimulus support and foreign investment flows lured by the surging yuan.

The currency is at new 30-month high after the PBOC cut the greenback’s weight in its currency basket. That’s lifted an emerging market currency index to new record peaks but is heaping more pressure on to the greenback.

Good news for China also from the New York Stock Exchange decision to backtrack on a decision to delist three Chinese telcos targeted by President Donald Trump.

Finally, the lockdown gloom is weighing on German and U.S. bond yields, yet reflation expectations and robust U.S. dataflow has sent U.S. breakeven inflation rates on 10-year Inflation Protected Securities to 2% for the first time since November 2018.

Key developments that should provide more direction to markets on Tuesday:

–OPEC resumes its meeting which was deadlocked over increasing output

-UK grocer Morrisons sales rise 8.1% in trading period encompasing Christmas

-Retailer Next sees 1.1% drop in Xmas sales

-Fed officials John Williams and Charles Evans speak

-Indonesian ride-hailing and payments firm Gojek and e-tailer PT Tokopedia are in advanced talks for a $18 billion

– German jobless December; French flash CPI

-U.S. ISM manufacturing data

-Fiat Chrysler and PSA investors approved a $52 billion merger to create the world’s fourth largest automaker, Stellantis