Stock Market Bullish After Friday’s Dip: This Week’s Stock Market Report

The market is up this morning as it recovers from Friday’s dip. This week was marked by an increase in volatility (the VIX has risen over 30) due to three things. First, the uncertainties related to Omicron variants and current vaccines’ effectiveness.

Second, the disappointing Jobs report through the markets into a tailspin on Friday. Lastly, rising inflation. Jerome Powell, for his part, expressed doubts over the notion of temporary inflation and stated that “the risk to persistent inflation has increased.”

This may be a positive sign for the market, which is currently under severe pressure from two sides (health and monetary). The asset purchase program could be ended sooner if inflation is proven to have occurred. Markets don’t like uncertainty, and this is especially true when central banks stop supporting them.

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The Federal Reserver was once again at the center of the action. Jerome Powell, Fed Chairman, put a wrench in the works Monday by changing the rhetoric. The Fed is more concerned about inflation and plans to reduce its asset purchases quicker than anticipated.

Considering the persistent price rises, investors expected such an adjustment.  This announcement was made amid a media-sanitary drama about the effects of Omicron, the most virulent form of covid-19.

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Reading between the lines, I think the Fed is TERRIFIED of stagflation and will aggressively do everything they can to avoid it.

Increased sales don’t always increase profits.

As we see more and more increased prices, sales will continue. However, price pressure may reduce profitability.

An example is American grocery stores are seeing lower profits because of domestic supply chain problems. Kroger reported an increase of 14% in sales due to COVID restrictions, inflation-weary customers, and a home-cooking boom.

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The boom is not reflected in profit numbers as Kroger reported a 24% drop in profits due to increased costs associated with disruptions in supply chains.

Due to delayed orders, Kroger and other grocery retailers have to stock more stock. This results in increased warehouse space requirements and rising costs for transport and handling services, which are passed onto the customer.

Dollar & Bonds

The reactions were somewhat strange in the end. The dollar didn’t move much, but one might expect a strengthening of the currency in the context of rising volatility and risk aversion. Even though it is trading at USD 1.2934/EUR, it is slightly lower than last week.

The Swiss franc has logically gained ground against the single currency, CHF 1.03892/EUR. At 13.7591 TRY/USD, the Turkish lira has again declined over the past week. Forex traders continue to punish President Erdogan’s interventionism, which dictates Erdogan’s economic strategy to the central bank of Turkey, whose independence is only paper.

The 10-year US bond market is currently 1.46%. This is a sharp drop from the previous week due to the return to the frontline of the pandemic. For its part, the Bund has dropped back to -0.36%, while briefly, the French OAT was in negative territory.

Data This Week

This week ended with difficult-to-understand data about the US labor market in December. The unemployment rate fell slightly, but job creation was lower than expected. This could impact the Fed’s policy, particularly if the coronavirus continues to be active.

Investors will continue to ask this question until the following major statistic is released. Next week’s schedule includes the German ZEW financial trust indicator (Tuesday), JOLTS job openings survey (Wednesday), and, most importantly, the US inflation for November (Friday).

Commodities/AG/Crypto

Oil prices fell again this week despite a positive weekend. This was due to the Omicron variant appearing almost everywhere around the globe. OPEC+ has confirmed that it will increase production by 400,000 barrels daily starting January 2022. Washington appreciated this decision, and Washington has reduced the price rise. Brent, the European benchmark, trades at 72.5 USD, while WTI trades at 69 USD a barrel.

The gold price is falling below USD 1,800 due to volatility in equity markets. An ounce of gold will cost you just USD 1770, while silver costs USD 22.3. Base metal prices stabilized because traders chose to wait and see, despite conflicting statements regarding the impact of the Omicron variant’s economic recovery on their markets. Copper lost some ground to USD 9500, while aluminum and nickel remained stuck at USD 20185 & USD 2655, respectively.

The Securities and Exchange Commission (SEC), on the cryptocurrency side, is refusing applications for physical Bitcoin ETFs. However, the financial regulator approved futures-backed index funds several weeks ago.

The inconsistency has been raised by two House of Representatives of the United States, and they are asking Gary Gensler, the Chairman of the SEC, to reconsider their filings. The market’s total market capitalization is currently hovering at $2.5 trillion, with Bitcoin hovering between $53,000-$60,000 over the past two weeks.

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