Crude oil and stock markets managed to rebound from their earlier sharp falls at the start of the week, and that momentum carried forward to today’s session for European indices.
There was a bit of relief that evidence shows Omicron does not cause as much severe illness as some of the other variants Covid, like Delta. But that still hasn’t stopped governments from introducing new restrictions recently – see details below from Reuters. I expect the markets to remain choppy and won’t be surprised to see indices turn lower again. Santa rally hasn’t materialised so far. There’s still time, but I can’t see any fundamental reason why people will all of a sudden start buying stocks in a meaningful way, without the markets first staging a deeper correction.
In fact, US markets came off their hights right after the open, as concerns over high valuations, surging inflation, and Fed’s tapering of bond purchases kept the bulls at bay. Let’s see if there will be any traction to that move as we go deeper in US session.
In Europe, the latest covid-related lockdowns and surging prices of gas and electricity – keeping price pressures elevated – means stagflations risks remain high and underscores the need for the ECB to keep interest rates low. Today saw European natural gas prices surged by another +20% to a new record high, amid strong demand due to cold weather and the lack of pipeline flows from Russia, where they also deal with very cold weather:
Last week, the Ifo institute said it expects the German economy to shrink by 0.5% in the final quarter of this year and stagnate in the first three months of 2022. But with omicron since causing more lockdowns ad restrictions across Europe, and gas prices surging to new records, the German economy could weaken even further than Ifo’s estimates.
So, keep an eye on indices such as the German DAX, as so far, we haven’t seen a convincing reversal sign. The DAX was testing potential resistance around 15450 area at the time of writing. Will the sellers return here?
More on Omicron, from Reuters:
The Omicron variant of the coronavirus is spreading faster than the Delta variant and is causing infections in people already vaccinated or who have recovered from the COVID-19 disease, the head of the World Health Organization said.
Countries across Europe were considering new curbs on movement as the fast-moving Omicron variant swept the world days before Christmas, throwing travel plans into chaos and unnerving financial markets.
Thailand will reinstate its mandatory COVID-19 quarantine for foreign visitors and scrap a quarantine waiver from Tuesday, while New Zealand postponed its phased border re-opening plans until the end of February due to concerns over the spread of the Omicron variant.
Source for all chart: ThinkMarkets and TradingView.com
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