Futures in the United States and Europe are trading modestly higher. Traders continue to show less concerns over the Omicron Covid-variant. Traders like the fact that yesterday Pfizer and BioNTech stated that a booster shot of their vaccines would provide good protection against infections from the new strain. As a result, the focus of investors has again shifted to how the Federal Reserve will change its monetary policy, moving forward, to cater to rising consumer prices and fuel economic growth.
In yesterday’s session, the Dow Jones Industrial Average rose 0.10%, while the S&P 500 index jumped 0.31%. The Nasdaq, the tech-savvy index, surged 0.64% while the Russell 2000 hopped 0.80%.
The main event that investors will be watching for today is the release of unemployment claims data. This report is important because the two main factors being looked at by the Fed are the health of the U.S. labor market and inflation numbers. Hence, unemployment claims falling will likely indicate to investors that the job market in the United States is improving and the U.S. economy is on the right track.
Investors have mainly been optimistic over the past few sessions because the new variant seems to be associated with mild symptoms, because of which hospitals have not been overwhelmed and policy makers do not have to implement strict restrictions and impose lockdowns, which would likely take a toll on economic recovery. The good news, moving forwards, is that although we are likely to see new coronavirus variants emerge in the future, the severity and repercussions are likely to have less impact as we understand the virus better now. We have good treatment options as well as vaccines available that can quickly be moulded to combat new variants.
Hence, investors have again shifted their focus to the Federal Reserve’s monetary policy, which is considered to be the main driver for stock markets in the coming months. Investors should note that the biggest issue that the Fed is facing right now is keeping inflation at bay, which is why tomorrow’s inflation reading is very important. If tomorrow’s data shows inflation is continuing to surge as it did in previous months, it will only support the Fed’s stance to increase its speed of tapering, which would mean a sooner than expected rise in interest rates as well. This would mean less liquidity in stock markets in 2022.
For the reasons mentioned above, stock prices of companies positively correlated with economic reopening, such as airline companies, jumped, while stock prices of technology companies are finding it difficult to find direction, and sentiment is likely to remain mixed at least until tomorrow’s inflation data. Consumer prices are expected to have risen 0.7% in November on a month-over-month basis. Similarly, weekly jobless claims are projected to be 211,000.
Over the past 12 months, interest in the blockchain space has been rapidly rising, and to assist new businesses wanting to understand and enter into the crypto arena, Visa is starting a crypto advisory practice. The main agenda for the department will be to help companies and financial institutions to capture and retain consumers who are interested in crypto services and NFTs, and to aid central banks to explore digital currencies for their nations.
This is a good initiative taken by Visa because, according to a survey, 18% of participants will likely shift their main bank to one that offers crypto-related services in the next 12 months. To retain these consumers, consultants at Visa will help their clients gauge potential opportunities aligned to their needs and plan effective execution of products like crypto reward programmes and digital wallets.
Oil prices have steadily been climbing after investors blew the Omicron news out of proportion, triggering a 16% decline in oil prices. However, Brent, the benchmark for crude oil, has jumped 9% since the 1st of December as demand for oil is not expected to fall in coming months. Even the aviation sector, which usually gets affected the most by new variants, has witnessed only a small drop in seating capacity.
Traders should also note that crude oil inventories data, which is released once a week, showed a smaller than projected decline in stockpiles for last week. Crude oil inventories fell by only 240,000 barrels. Meanwhile, oil output in the United States jumped to 11.7 million barrels per day. The lower-than-expected decline in oil stockpiles and a rise in output by the United States indicates that supply will likely surge in the short term and hence will help alleviate demand pressures to some extent.
The price action of gold has mostly been mixed as investors await consumer price data to be released on Friday. Treasury yields are continuing their upward trajectory as Omicron is likely to have little impact on the American economy and the Federal Reserve will be moving on with its plan to speed up its pace of tapering, which will mean a quicker rise in interest rates starting next year. When interest rates jump, the opportunity cost of holding the yellow metal rises and hence makes gold less appealing for investors to hold.
Asian Pacific Markets
Recent data from China showed that factory gate inflation weakened last month from its highest level in 26 years. The consumer price index jumped 2.3%, below the expected 2.5%, but still the highest incline since August last year. Similarly, the producer price index was forecasted to rise 12.1%, but in actuality, it climbed 12.9% compared to the year before. The somewhat moderate inflation is good news for Beijing as it will give the Chinese government some room to support the country’s economy and pump some more liquidity to boost economic growth.
As of 12.25 a.m. EST, the Nikkei dropped 0.32% and the Shanghai index jumped 1.17%. The Hang Seng index, in Hong Kong, hopped 0.89%. The ASX 200 index fell 0.15%, and the Seoul Kospi rose 0.36%.