US and European futures are trading a bit soft today after last week’s disappointing payroll data, which took a toll on investor confidence, and following which the Nasdaq index shed nearly 290 points. Even before this development, stock markets were already under pressure because of the Omicron coronavirus variant spreading across the globe. Investors are still uncertain what the new variant will mean for financial markets and hence are moving to hedge their exposures by getting rid of risky assets in their portfolios.
In Friday’s session, the Dow Jones Industrial Average fell 0.17%, while the S&P 500 index declined 0.84%. The Nasdaq, the tech-heavy index, dipped 1.92% while the Russell 2000 dropped 2.13%.
The most important event for the week is inflation data from the United States, scheduled to be released on Friday. Recently, the Fed has shifted from its view that consumer price rises are “transitory”, and has turned more hawkish by indicating that it will speed up its pace of tapering in an attempt to control inflation from further expansion. Moreover, we are expecting Ben Broadbent, Deputy Governor of the Bank of England, to speak at Leeds University. Hence, his remarks on the future outlook of monetary policy, growth, and inflation could potentially trigger volatility in European stock markets.
Bitcoin’s price is a lot more stable today after the massive rout over the weekend which took crypto traders completely by surprise. Having said that, crypto traders are still nervous and the massive plunge which took place over the weekend is still haunting them. There is no doubt that the weekend’s sell off was nothing short of a horror movie but for investors who understand the potential of Bitcoin, it was the biggest opportunity. In fact, for them, it was Christmas coming early. The most important price level for the bitcoin price is 50K when the BTC price violated this support, the price action was a blood bath. Now, in terms of the BTC price, we are focused on two important price levels, firstly the support of 40K and traders are hoping that the price will stay above this price. As for the resistance, we need to see the price breaking above the 50K price mark and stay above this. So far, it is pretty clear, that the recent sell off brought a lot of newer buyers into the market. Once the dust settles, we are likely to see more funds reporting their new positions in Bitcoin.
The main reason for the slump in stock markets in Friday’s session was the mediocre non-farm payrolls report. The forecasted rise in jobs was 573,000, but the actual number came in at just 210,000 in November, which is not even half of what was expected. It is important to note here that the decline in jobs added is for the period prior to the emergence of the Omicron variant, and hence the development is worrying because if Omicron cases were to rise, the situation is likely to worsen.
As a result, stock market risk perception increased, triggering a sell-off, particularly in technology and growth stocks, which have high valuations based on strong economic recovery. As stock traders rushed to reduce their risky assets, yields on 10-year treasury notes fell to about 1.34%, the lowest figure seen since September. On the other hand, unemployment in the United States decreased from 4.6% in October to 4.2% in November and surpassed the projected 4.5% figure.
Moving onwards, developments and updates related to the Omicron variant are likely to remain the main drivers for sentiment in financial markets. In the United States, 15 states have reported Omicron cases, and this number is only expected to rise. Although the number of Omicron cases rising is alarming, it is important to note that South African officials have reported that symptoms of Omicron cases seem to be mild, and this view has also been reiterated by Anthony Fauci in the United States. However, Americans should still be cautious as it is still too soon to come to a conclusion, and to understand how effective the current vaccines will be against the new strain.
This week, investors will be closely watching inflation data for November, which is expected to show one of the steepest inclines in history. Due to this, the Federal Reserve is likely to be under pressure to tighten its monetary policy and execute a quicker tapering of bond purchases even after the poor payroll report. Considering the new risks in markets, Goldman Sachs has also cut its forecast for growth in the United States from 4.2% to 3.8% in 2021. The banks also reduced their growth projections for 2022 from 3.3% to 2.9%.
Oil prices have taken a massive beating as investors fear oil demand will drop, and supply will rise as the United States continues to add rigs and OPEC+ sticks to its initial plan of adding 400,000 barrels per day in January 2022 as well. The cartel has, however, hinted that it will continue to monitor the situation closely and can quickly change its policy and set a meeting before the already scheduled one on January 4th. As with the broader financial markets, oil prices, moving forward, will also be dependent on how the Omicron variant affects global economies. If the state of cases becomes more severe, economies could again move to raise restrictions and impose lockdowns, having an adverse impact on oil prices.
Gold is considered a safe-have commodity that investors purchase during times of volatility and uncertainty to hedge their risks. Thus, because of the recent spike in uncertainty and the decline of stock markets, investors have started to increase their exposure to the precious metal in an attempt to secure their wealth with money withdrawn from stock markets and crypto markets. As a result, the price of the precious metal jumped nearly 1% on Friday.
However, investors should note that the Federal Reserve is still sticking to its plan to speed up tapering, which would mean a quicker rise in interest rates. A surge in interest rates increases the opportunity cost of holding the precious metal and hence decreases its appeal.
Asian Pacific Markets
Sentiment in Asian Pacific markets seems to be mixed after the stock price of Alibaba dropped about 8% today. The dip in stock prices arose after the company replaced its chief financial officer, Maggie Wu, with Toby Xu. As of 01.12 a.m. EST, the Nikkei dropped 0.35%, and the Shanghai index jumped 0.37%. The Hang Seng index, in Hong Kong, fell 1.26%. The ASX 200 index hopped 0.19%, and the Seoul Kospi rose 0.36%.