The stock market is bouncing up this morning after now recognizing the virus as a new Covid threat – Omicron on Friday. It is a new, faster-mutating, contagious variant of the Chinese virus, Omicron B.1.1.529, that was detected in South Africa and signs a new wave. The popularity of “Covid-proof” stocks has risen, particularly in the area of vaccinations. Let’s not jump to conclusions about a variant that the scientific community doesn’t know enough.
Key Market Trends
Tip: Use this as a quick guide on the short-term direction (1-2 weeks) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.
|Last||CHG %||CHG||HIGH||LOW||SHORT TREND||LONG TREND|
|US Dollar Index||96.263||0.20%||0.192||96.36||96.071||Bull||Bear|
Key Drivers for the Week of Nov. 29
TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.
- New Covid Virus Strain, Rising Covid Cases in Europe, CA & MI
- Rising Inflation & Prices
- Christmas Shopping Sales
- Fed Talks – Monday 3PM
- Home Price – Tuesday 9AM
- Chicago PMI – Tuesday 9:45AM
- Consumer Confidence -Tuesday 10AM
- Fed Talks – Tuesday
- ADP Employment – Wednesday 8:15AM
- Fed Talks – Thursday
- Unemployment – Fridaay 8:30AM
- Factory Orders – Friday 10AM
- ISM Non-Manufacturing – Friday 10AM
- Durable Goods – Friday 10AM
Last week, the Biden administration announced that Jay Powell, current Federal Reserve chairman, will be nominated to continue for a second term in February 2022. Claudia Sahm, a former Fed economist, painted a grim picture of Powell’s second-term policy options. Next year “without question, is going to be one of the hardest years that the Fed has had to navigate. They have a very complicated task ahead of them,” she warned.
Recalling months of analysis in this report, Fed will likely raise interest rates to fight inflation. This will slow down economic growth. Recall that 10 of the 13 rate hike cycles in recent years have ended with a recession, some of which were unexpected and premature. This is the Fed’s most significant risk when it comes to rate hikes.
Inflationary supply chain problems will continue to exist as insufficient goods are produced to meet the demand. Although supply shortages have started to trend down in June, they remain severely impeded.
Holidays sales appear to be down, and I think this could be the biggest risk to markets. The data we have seen so far is that sales are below 2019. Obviously, it is very early, but expect a huge drop in retail stocks if the trend continues.
Europe’s economy showed strength on Thursday, with November PMI indicators exceeding economists’ expectations. These surveys by Markit measure the purchasing decisions of purchasing managers in a variety of companies. They assume that this is an important economic indicator. The future looks bright for France, Germany, the UK, and the Eurozone, which all have strong PMI growth. The US data, particularly October’s durable goods orders, declined at the end of this week. However, employment numbers for the week are still substantial.
If not for the return to the pandemic at week’s end, everything could have been just as great as it could have. Financial markets were shocked when a very virulent variant was discovered in southern Africa. They thought they had been done with Covid-19.
The most significant impact of this return to risk aversion can be seen in bond rates. On Friday, the 10-year US government debt yield increased by 10 points, from 1.63% to 1.53% (or 10 points). The Bund’s yield went from -0.25 – -0.32% in the same time frame, while the OAT of France is back at 0.5%. Investors believe that if the pandemic caused new restrictions, the central bank would have to slow down their reduction in support. This explains why the bond rates are easing.
The dollar drove the euro to 1.12 in the middle week of foreign exchange trading. However, the greenback lost some ground afterward and remained at high levels. Mid-week, the greenback reached a 4-year high against the yen at JPY115.41. EUR/CHF traded slightly in favor of haven currency CHF 1.0448/EUR. The Turkish lira’s slide was the most talked about, with a session of -13% on Tuesday. This is against the backdrop of a deep crisis caused by President Erdogan’s refusal to allow central banks to raise key rates.
Next week’s economic statistics are very full and include the Manufacturing PMI, Unemployment Rate, Producer Price Index in Europe, Composite PMI, and Services PMI.
Multiple speeches by Federal Reserve are scheduled throughout the week. The most-watched statistic for the week will be the US employment figures for November. It is likely the Fed will try to downplay any major hikes, but the economic data could cause major market moves if it is very negative.
The US’s move to tap into its strategic reserves with oil-consuming countries to increase prices has been resisted by oil prices. However, they couldn’t withstand the rise of a more severe coronavirus and new travel restrictions. The Brent crude oil price fell below USD 80 and now trades at USD 77. US benchmark oil is also falling to USD 73/barrel.
This new version also raises the temperature in the cryptocurrency market. The market lost 7% of its total market capitalization on Friday, taking it below $2500 billion. Bitcoin is, however, not far behind. It was now letting its counter slide below $55,000.
Investors still shun gold despite a rise in risk-aversion, which gives it some color. This is due to a rising dollar and a slight increase in US real bond yields. The price of the golden metal is USD 1,800 an ounce.
On the other hand, industrial metals have seen a reversal in their upward trend as tight supplies and concerns about price increases are driving prices higher. To improve the supply chain, Indonesia announced it would stop exporting copper, bauxite, and tin by 2024. Copper trades at USD 9930 per metric tonne.