Markets remain highly on edge and reactive to anything that comes out about the new COVID variant, Omicron. Wall Street was sharply higher into the close after President Biden suggested that further lockdowns were unlikely, due to the vaccination program. However, early this morning saw risk appetite plunge again over comments from Moderna that vaccine effectiveness may see a “material drop”. This nervous state of markets is weighing on risk appetite, with safe-haven forex outperforming. The oil price is also extremely volatile in a move back lower.
- Main drivers: Sentiment is nervous; Moderna predicts a “material drop” ineffectiveness of vaccines; Powell testifies to Congress; Economic calendar: Eurozone inflation and Canadian GDP, US Consumer Confidence
- Sentiment highly nervous: US futures and oil fell sharply early this morning after comments from Moderna (vaccine producer) that its vaccines may be less effective to the Omicron variant. Markets remain highly volatile to COVID newsflow – both higher and lower.
- China Manufacturing PMI beats: Manufacturing PMI rises to 50.1 (back into growth territory)
- Powell’s transcript suggests caution over Omicron: “the rise in cases and emergence of Omicron poses significant downside risks to employment and economic activity and greater uncertainty for inflation [risk negative, potentially USD negative]
- Eurozone inflation today: after German and French inflation has spiked higher, there is a clear upside risk to the Eurozone data today. [EUR volatility elevated]
- Central bank speakers: Fed chair Powell’s Congressional testimony and two other Fed members:
-Fed chair Powell makes his quarterly testimony to Congress (Senate Banking Committee) at 1500GMT along with Treasury Secretary Yellen.
-FOMC’s Clarida (permanent voter, centrist)speaking at 1530GMT
-FOMC’s Williams (permanent voter, leans slightly dovish) speaking at 1800GMT
- Economic Data:
· Eurozone inflation at 1000GMT is expected to see headline inflation increasing to +4.5% (from +4.1% in October) and core inflation increasing to +2.3% (from +2.0% in October)
-Canadian GDP at 1330GMT is expected to be +0.1% MoM in September (+0.4% in August)
-US S&P/Case-Shiller Home Price Index at 1400GMT is expected to be +20.0% in September (from 19.7% in August)
-Conference Board Consumer Confidence at 1500GMT is expected to fall slightly to 111.6 in November (from 113.8 in October)
Broad outlook: markets nervous and trade with a risk negative bias. This volatility is likely to continue over the coming days as we learn more about Omicron. For now, there is a trend of cyclical assets underperforming, whilst safe haven plays are performing well.
- Forex: There is a clear split forming with safe havens (CHF, JPY, EUR) doing well, whilst cyclical/commodity currencies (AUD, NZD and CAD) underperform.
-EUR/USD is now recovering well. A break this morning above 1.1330 opens the first important resistance of the recovery at 1.1370. This remains a near term rally within a medium-term decline, however, the momentum is building in the recovery.
-GBP/USD is ticking higher this morning but needs to get above 1.3362 to suggest any sustainable recovery is underway.
-AUD/USD remains in a negative configuration but is trying to claw back some losses. Until 0.7160 is breached there is no real prospect of recovery.
- Commodities: gold is trying to form a recovery but the more cyclically based silver remains under pressure. Oil volatility remains high as the sell-off resumes.
-Gold is holding ground above $1778 but is unable to find any traction in recovery. Resistance is at $1815. Very uncertain outlook for now.
-Silver has found selling pressure amidst the question marks over global growth. A mild tick higher off $22.75 but little sign yet of any serious recovery. Under $22.75 opens $22.25/$22.30.
-Brent Crude oil remains highly volatile, pulling sharply lower in the early hours today on the Moderna news. Initial resistance $72.80/$75.00.
- Indices: A yesterday’s rally has been unwound again after the Moderna news. High volatility continues.
-S&P 500 futures have picked up from just above Fridays low of 4577 but there is a lack of certainty and moves remain highly choppy. Resistance now at 4669. Technically still a near term sell into strength for a correction within the long term uptrend channel.
-DAX selling off from 15,463 strengthens the resistance around 15,500/15,600. A pick up from 14,910 this morning but in nervous markets, rallies are struggling for sustainable traction.
-FTSE 100 failing around 7180 leaves this as a key resistance now. There is a clear downside bias for now. A close under 7000 would be bearish for a retest of 6924 but potentially around 6800.