This week is all about the Omicron variant, and the surprise from Chair Powell ahead of the much anticipated NFP data as the new month dawns.
The Market Week – November into December
Another volatile week greets the new month as countries react to the new COVID-19 variant Omicron, and FED Chair Powell surprised with a big Hawkish tilt suggesting a faster taper and that inflation could indeed be persistent, “retiring” the idea that inflation is transitory. Stocks tanked, the Dollar and Yields rallied before cooling. OIL had its worst month of the year ahead of a delayed OPEC meeting. All eyes now on NFP Jobs data (Friday).
It’s NFP week so jobs, earnings and unemployment take centre stage. The weekly US unemployment claims posted a 52-year low last week under 200,000, and this week 238,000 is expected. NFP is expected to be around 550,000 and unemployment to remain at 4.5%. The data continues to trend lower and to demonstrate a tight labour market.
The vaccine and booster rollout programmes were given a major profile lift as the new and seemingly more transmissible but perhaps less deadly COVID variant was detected, however it will take a number of weeks before this can be confirmed. Countries closed borders and restrictions were re-imposed as uncertainty (the markets’ biggest enemy) gripped sentiment.
Volatility was evident everywhere. In FX the USDIndex spiked to 96.92, dipped to 95.50 and remains sub-96.00. EURUSD sank to the 1.1180s, before recovering to 1.1325, USDJPY dived from 5-year highs over 115.50 to 112.50 and trades today at 113.50. Cable sank as low as 1.3192 before reclaiming the 1.3300 handle.
US stock markets were also hit by the volatility. The USA500, having consolidated around 4,700 for well over a week, tanked on Friday by over 2.2% and has tested as low as 4555. The key 50-day moving average sits at 4540 as the index trades back over 4,600. December is traditionally a positive month for equities; for now though, volatility and uncertainty rule.
The Gold price, having breached $1800, moved as low as $1770 and remains weak without the expected safe haven bid normally associated with volatile and uncertain markets. The 20-day moving average is north of the key $1800 handle and the 50-day moving average sits at $1790.
USOil prices had a particularly volatile week, ahead of the delayed OPEC+ meetings. The expected increase in production from 400,000 barrels/day, from January, is now under question. Prices continued to decline, plotting a low this week at $64.10 before recovering to $69.00 before weekly inventories and the news from OPEC.
The yield on the US 10-Year Treasury Note remains very much in focus. A weekly low of 1.410% was posted on Tuesday ahead of Powell’s hawkish tilt, PMI data and the NFP numbers on Friday. A clear flattening of the yield curved followed Powell’s comments, and the 10-yr trades at 1.44%.
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Stuart Cowell
Head Market Analyst
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