Market sentiment has been buffered from pillar to post in recent sessions. This morning there is a sense of mild risk recovery taking hold, but given recent events and high levels of volatility, there are serious questions over how sustainable any moves are. The Manufacturing PMIs and ISM data will be eyed.
- Main drivers: Sentiment tentatively recovers again; a hawkish Fed chair Powell; China Caixin Manufacturing PMI misses; AstraZeneca steadies vaccine fears; Economic calendar: Manufacturing PMIs and ISM, ADP employment
- Sentiment swings higher once more: After lurching lower on a hawkish testimony from Fed Chair Powell, sentiment has recovered once more. Markets are still on the lookout for any Omicron news.
- Fed chair Powell taper talk: Powell believes that a faster taper of asset purchases may still happen despite the Omicron variant of COVID. Higher inflation seemingly needs to be tackled. Markets move to re-price for earlier rate hikes. [Sentiment negative, USD positive]
- AstraZeneca on vaccines: The pharma giant believes there is no evidence to suggest vaccines will not work against Omicron. Testing is taking place now and they will know more in a few weeks. [Sentiment positive]
- Australian GDP beats: Q3 YoY growth comes in at +3.9% ahead of the +3.0% forecast [AUD positive]
- China Caixin Manufacturing PMI misses: The unofficial Caixin PMI survey for the manufacturing sector has missed estimates and fallen into mild contraction at 49.9 (50.5 exp, 50.6 in October). [mild risk negative]
- Central bank speakers: Fed chair Powell’s second day of testimony, also BoE Governor Bailey speaks:
- BoE Governor Bailey speaking at 1400GMT
- Fed chair Powell makes his second day of Congressional testimonies to the House Financial Services Committee at 1500GMT. Once more he is flanked by Treasury Secretary Yellen. It is unlikely that Powell will shock markets as much as yesterday.
- Economic Data:
- UK final Manufacturing PMI at 0930GMT is forecast to be unrevised from the 58.2 flash reading (up from the 57.8 final October)
- ADP Employment Change at 1315GMT is expected to improve be strong again at 525,000 (571,000 last month)
- US ISM Manufacturing at 1500GMT is expected to improve slightly to 61.3 (from 60.8 in October)
- Fed Beige Book at 1900GMT lays out more detail of the Fed’s economic outlook
Broad outlook: markets remain extremely volatile and reactive to newsflow, especially on Omicron. Sentiment has picked up slightly and, interestingly, USD strength has decisively renewed.
Forex: Safe havens (CHF, JPY, EUR) are underperforming today, whilst cyclical/commodity currencies (AUD, NZD and CAD) have picked up. GBP and USD are sitting in the middle. See our range of Forex pairs here.
- EUR/USD has been choppy since Powell. Whilst the recovery is still in play, another move lower early in the European session is questioning how stable it is. Key resistance at 1.1385 needs to be broken. Support around 1.1260 is increasingly important.
- GBP/USD recovery prospects were dealt a blow yesterday with resistance at 1.3370 strengthening. The downtrend remains intact and any recovery is on ice as USD strengthen begins to hint again in the European session.
- AUD/USD Early gains today from the positive Australian GDP have eased back. Recovery prospects are now hinged on resistance at 0.7170/0.7180 being broken.
Commodities: precious metals have turned lower again, oil rebounding but for how long? Is it time to trade one of the below commodities?
- Gold recovery potential has been damaged by moving below $1778. An early rebound today is also falling back again, meaning the outlook is under increasing pressure and could turn lower again. This could be a pivotal session or two for gold.
- Silver fell back sharply into the close yesterday and another initial rebound has fallen over today. Pressure remains to the downside for $22.20/$22.35.
- Brent Crude oil an early rebound this morning, but recent intraday rallies have faltered. Reaction around initial resistance $72.80/$75.00 will be key. Expect volatility on OPEC+ news.
Indices: Index markets looking to recover on better risk appetite today.
- S&P 500 futures have rebounded from the support band 4550/4590 but the move now needs to build higher low support and break above 4644 resistance to start looking sustainably more positive.
- DAX a pick up from 14,910 this morning and with a higher lo at 15,035 from the post-Powell reaction is gradually forming the building blocks for potential recovery. Breaking above resistance at 15,462 is needed to form a reversal pattern and sustainable traction.
- FTSE 100 is rebounding well but the key resistance around 7180/7200 needs to be breached to drive a sustainable recovery. There is a higher low at 7038 and potentially 7090 to build from.