The festive stock market rally appears to be playing out nicely with US equities continuing to drive higher in thin, holiday liquidity. The S&P 500 marked its fourth straight day of gains with another record high close, as the index climbed 1.38%. The tech sector led the way with the Nasdaq advancing 1.39% while the Dow pushed north with gains just shy of 1%. An ecommerce boom in retail sales underscored the evident underlying strength in the economy and eased worries from Omicron-driven flight cancellations which hit travel stocks.
Festive spirits remain high despite rising infection rates
The UK and France are seemingly looking through their record and rising cases of Covid-19 as both governments declined to ramp up more severe social restrictions as we head into the new year. With other positive Omicron news out of South Africa, markets are getting into the spirit of the Santa rally in the last few trading days of 2021. Of course, trading volumes are traditionally very much suppressed at this time of the year, so it is probably wise not to go chasing price action too much.
That said, the traditional Santa rally does traditionally kick off in the last few days of the year and the first couple of the new year. Interestingly, going back to the mid-1990s, there have been only six times Santa has failed to show in December and January was lower in five of those six times.
Yen lags in thin conditions
JPY has been the notable laggard in trading amid low volumes, as risk sentiment remains mildly positive. USD/JPY hit a one-month high yesterday as bulls eye up the recent cycle top in late November at 115.513. Previous long-term resistance also sits near here, with next levels nearer 118. A move through the mid-115s will need the US 10-year Treasury yield to push convincingly through and above 1.5%.
Meanwhile sterling continues to build on its pre-Christmas gains. Bets on the Bank of England hiking rates four times next year has boosted GBP with traders expecting a slight overshoot to rein in inflation.
Gold inching higher
Amid the quiet trade, gold is creeping north with four straight days of gains. Prices had been trading around the 200-day simple moving average around $1800 but the recent move has pushed up making one-month highs. Strong resistance again sits at $1834 ahead of recent cycle highs above $1870.