While inflation is at an all-time high in November, Omicron seems to have had a less significant impact on the markets this week. Pfizer’s announcements seemed to confirm booster jabs’ effectiveness, and players were comforted.
The macroeconomic indicators front was quiet last week, at least until Friday when November’s US inflation report was published. The ZEW German Financial Confidence Index (November) exceeded expectations in Germany, and inflation was also confirmed to be up 6% year over year.
The consumer price index in the United States rose 0.8% last month instead of 0.7% expected, and this pace is slightly slower than in October. Inflation reached 6.8% over a year and 4.9% when excluding volatile elements. Markets initially reacted positively to the news, possibly because an upward slide would have forced the Fed’s monetary tightening program to be intensified.
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The currency front saw the Turkish lira continue to fall against the dollar and euro, although to a lesser degree than the week before. The euro/dollar dropped below 1.13 this week. The variations on the major pairs are still narrow. The sovereign rates were slightly lower than their previous levels, but they did not change much during the week. Over the past ten years, the US T-Bond yields 1.48 %, the German Bund is -0.36%, and the French OAT is -0.01%.
The Fed – Wed
All eyes will be on the West, where the FED may accelerate the end to its asset purchases. This week will see announcements by central banks about key rates, and the FED will announce its decision on Wednesday and the ECB on the following day.
This week’s macroeconomic agenda is incredibly dense. We’re dedicating a significant portion of this column to it. We could pick one event: Wednesday, December 15, 2021, ‘s final monetary policy decision by the US central bank. Will the Fed continue to reduce support to curb inflation, or will it change its mind and include the latest health threats? This is the question. The ECB will make its decision the next day. This week will be marked by Flash manufacturing and services PMIs in December. These will provide a good indicator of the economic dynamic of major economies at the end of this year.
Goldman Sachs believes that inflation will normalize after July 2022, when Goldman predicts that the Fed will raise interest rates. Goldman states that “we expect a funds rates hike every six months” and that inflation “should settle 0.5% higher than the pre-pandemic levels on average” because central banks “have tweaked their goals accordingly.” Data for December will be available next week, when we may see another rise. Larry Summers believes that inflation is “very difficult” due to home prices, consumer price index, and employee quit rates. He believes that inflation could worsen over the next few months before there is any relief. Jim Glassman, JPMorgan’s Head Economist for Commercial Banking, said that inflation should begin to recede by 2022. However, the early part of the following year could see little relief from the 2021 price rise.
Summer’s comments about the job market show that workers are leaving the workforce at alarming rates, despite the robust employment data in the last few months (except November). Limeade, an organization that conducts workforce research, found that the three most common reasons people leave work are burnout and lack of flexibility. They also want to find a place that supports their mental health. 4.3 million Americans quit their jobs in August, while 4.4 million did the same in September.
This represents 5.39% of the nation’s workforce. According to Julia Pollak, ZipRecruiter Chief Economist, employment opportunities will continue to be plentiful in 2022. According to Pollak, the “Great Resignation,” which lasts well into the year, is expected to persist. There are currently 11 million job opportunities. Pollak says that employers will continue to offer more incentives to employees, and many Americans will be encouraged to use unstaffed companies that offer above-average wages. Jim Glassman also spoke on the topic, stating that while a few million people could return to work if pandemic stress subsides, labor shortages will likely persist into 2022.
According to SGH Macro Economist, Tim Duy interest rates could rise as early as March. This is when the Fed might complete tapering after it reconsiders its tapering pace at the December Federal Open Market Committee meeting. He says, “If unemployment falls further below the current 4.2% and maybe it even holds here, then I think the Fed should use the January meeting in order to open the door to a March rate increase.”
Duy points out that although the Fed initially anticipated an increase in rates once tapering was complete, it is possible that these two measures could overlap with asset purchases continuing to increase as interest rates rise simultaneously. Goldman Sachs says that the Fed is on a long path to higher nominal rates than in the post-global Financial Crisis environment, and we can also expect inflation to rise above its nominal range.
Oil markets were volatile, just like equities. They are currently under pressure from concerns about the Omicron variant and the default of Evergrande or Kaisa, two Chinese developers.
Oil prices are still expected to rise this week, but traders prefer to keep the glass half-full in light of the anticipated increase in oil consumption for 2022. WTI trades at USD 71.4, while the North Sea benchmark is currently trading at USD 74.7/barrel.
Gold & Precious Metals
No other factors could increase gold prices than increased volatility in risky assets and inflationary pressures. The cost of gold is currently at USD 1,800, or USD 1,770 an ounce, and silver is also falling below USD 22 in the same infernal trend. The industrial metals side saw copper and nickel stabilizing at USD 9580, USD 20,000, respectively. Meanwhile, lead and zinc registered positive weekly performances at USD 2330, USD 40,000, per ton.
Concerning crypto-currencies: The market has experienced a drop of more than than 12% in one week. Bitcoin itself, however, cannot boast of better resistance, as it posted a similar decline at the point of writing. Black Saturday, December 3, saw $2.5 billion worth of liquidations on bitcoin futures markets. This partly explains why the price fell to $42,000 that day and dropped to under $50,000 today. The digital asset market had a nervous year.
Let’s talk about lumber and agricultural commodities. Their price has risen to USD 1,000 because of flooding in British Columbia, disrupting Canadian exports to America.