Inflation in focus as optimism over omicron keeps risk appetite supported

Equity markets continue to perform mixed, as optimism over peak omicron wave supports value stocks while questions remain over technology and overvalued growth stocks. Indeed, following a strong-two recovery, tech-heavy Nasdaq futures were a little softer first thing this morning as investors awaited key US inflation data. In contrast, the UK’s FTSE 100 broke to a new high on the year, while South Africa’s top shares index rallied to fresh unchartered territories. The risk-on sentiment also continues to be observed in commodities space, with copper breaking out to a new three-month high around $4.50, while Brent crude oil has closed in on $85 handle as it extends its recovery to four consecutive weeks.  

Omicron optimism fuels rally in crude, copper and stocks

Clearly, there’s relief about omicron’s spread and impact on the economy. It has proved to be not as deadly as some of the other variants of covid and less taxing on the economy compared to previous waves, as talks grow louder to transition from pandemic to endemic. Hopes that more travel restrictions will ease around the world has lifted optimism over demand for crude oil and boosted the appetite for value stocks in the tourism sector. Banks continue to find buyers because of rising yields.

US inflation may have soared even higher in December

As optimism rises over the economy, inflation remains a key concern and today we could see a new multi-decade high for US consumer prices. If CPI comes in hotter than anticipated this could even derail the two-day Nasdaq rally as it would cement rate hike expectations further. Inflation is expected to have climbed 0.4% in December, pushing the year-over-year rate to 7.0% from 6.8% in November. Core CPI is expected to have shot up to 5.4% up from 4.9% previously. Such reading will undoubtedly cause panic for some Fed officials. Conversely, if inflation turns out to be somewhat weaker, then this should provide them – and the markets – with relief.

Chart to watch: Nasdaq

After finding good support from the long-term trend line, let’s see if today’s US inflation data will prevent the index from rising further or ignites fresh bullish momentum.