The (more traditional) markets remain in an overall
holding pattern, with stocks and crude oil managing to regain some ground so far in this first day of the new week after their recent falls. Gold remains subdued, held back by a strong dollar and slight positive tone in the equities space. Cryptos remained the standout losers today.
Source: ThinkMarkets and TradingView.com
Bitcoin’s strong correlation with the stock markets over the past year or so means it hasn’t been able to decouple itself during the recent turmoil we have seen on Wall Street and elsewhere. Cryptocurrencies are unlikely to see stimulus-driven inflows similar to last year if we see new virus-linked lockdowns, given that some major central banks are printing QE at or near full throttle while governments have exhausted fiscal support during the pandemic.
Indeed,
most of the attention remains on Omicron. While cases of the new Covid variant have been rising across the world, question marks remain as to whether the current vaccines are effective and exactly how transmissible Omicron really is.
Until there’s more clarity, expect to see more chop and churn in the markets. In South Africa, cases of younger people with more serious symptoms being admitted to hospital have been rising, but most are unvaccinated or have only had one dose.
This suggests that getting two does (and a booster) might still prove affective against Omicron. If that’s proven to be the case by experts, then we may not see significant further restrictions and lockdowns that could send the global economy into another recession. Further lockdowns are the last thing anyone wants right now, and government will do their best to avoid such measures as much as possible.
Meanwhile, the
debate about the future direction of monetary policy in the US and elsewhere will continue to dominate market talk over the next few weeks. The decision by the
People’s Bank of China to cut the RRR by 50 basis points today has certainly helped to provide some support for the markets today. We will hear from the likes of the Reserve Bank of Australia and Bank of Canada this week too. But it is the
Federal Reserve’s policy decision next week on December 15 that investors will probably be looking forward to the most. Ahead of which, Fed speakers are in a blackout period, meaning we won’t hear much in the way of new information until then. The FOMC are expected to discuss a quickening of the pace of QE taper, which is why the dollar has been rising. But if the Covid situation deteriorates, then there is a risk the Fed may decide against a faster taper. So paradoxically, there is a possibly that the dollar could weaken if we see a risk off period in the markets stemming from fresh concerns about coronavirus and its variants.
The week’s main data highlight is likely to be the
US CPI on Friday, which is likely to have increased another 0.7% on the month to take the year-over-year reading to 6.8% from 6.2% in the previous month. If this is the case, or worse we see even hotter inflation numbers, then the dollar could accelerate to the upside. But the economic calendar is going to play second fiddle to the events that have weighed on investor sentiment of late.