Markets continue to be roiled by the Omicron news flow, as a positive tilt lifted Equities, USD and Yields. Still to come before the week closes out are the BOC, the 30-yr auction and the key US CPI.
The Market Week – December Week 2
Another volatile week as the Omicron news peaks and troughs, and markets respond accordingly. Stocks recovered, the Dollar and Yields cooled and rallied. The NFP headline missed significantly but the details were positive. OPEC+ surprised and central banks held steady ahead of the US CPI data on Friday.
Jobs grabbed the headlines; new jobs for November were only 210,000 compared to expectations of 555,000, however Unemployment fell to 4.2% and earnings held close to 5%. The weekly US unemployment claims posted a new 52-year low of 194,000, and this week 219,000 is expected. The data continues to trend lower and to demonstrate a tight US labour market.
The vaccine and booster rollout programmes were given a major profile lift as the Omicron variant appears more transmissible but perhaps less deadly, however it will take several weeks before this can be confirmed. Countries closed borders and restrictions were re-imposed as uncertainty (the markets’ biggest enemy) continued to grip sentiment.
Volatility was evident everywhere. In FX the USDIndex rallied from 95.50 lows to 96.50 and holds over 96.00. EURUSD sank from 1.1360 to 1.1225, before reclaiming 1.1300, USDJPY consolidated at 112.70 and trades today in the mid-113.00s. Cable sank below 1.3200, to new 1-year lows at 1.3160, as political turmoil rumbled in London.
US stock markets saw a decisive boost this week amid improved growth optimism and growing conviction that Omicron won’t derail the global recovery. The USA500 leads the way, advancing to around 4,700, reversing November’s plummet. December’s Santa Claus rally traditionally makes it a positive month for equities. Could it be disturbed by the Fed next week?
The Gold price, having reversed the month’s losses to $1761 lows as the Dollar and yields ease, remains sideways, with the safe haven bid expected to be limited. The 200-day exponential moving average is north of the key $1800 handle.
USOil prices had a particularly beneficial week, taking a breath as concerns eased further about the impact on global fuel demand of the Omicron variant. Currently it has steadied at $71.00, as geopolitics are now in focus, with US-Iran nuclear talks to resume later this week; US-Russia tension was raised as Biden warns Putin of sanctions, and Nord Stream 2 disruption if Russia invades. The November 29 high of $72.93 is a key resistance for USOIL.
The yield on the US 10-Year Treasury Note had its biggest weekly drop since June 2020 last week due to a hawkish Powell and fears over Omicron. This week it was a touch lower at 1.4597%, a clear bear flattening of the yield continues to weigh on Treasuries ahead of US Inflation on Friday and the Fed meeting next week.
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Stuart Cowell
Head Market Analyst
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