Futures in the United States and Europe are up today despite the discovery of the first Omicron variant case in the United States, which forced investors to reduce their exposure to risky assets. As a result, the Dow Jones Industrial Average dropped nearly 460 points yesterday. Even before the Omicron case, stock traders in the United States were panicking due to higher uncertainty caused by Fed Chair Jerome Powell’s remarks about boosting the pace of tapering to mitigate the surge in consumer prices. According to him, explaining inflation as “transitory” is no longer valid, and the US economy is in good shape and can survive without the Federal Reserve’s lifeline.
In Wednesday’s session, the Dow Jones Industrial Average dropped 1.34%, while the S&P 500 index dipped 1.18%. The Nasdaq, the tech-savvy index, fell 1.83%.
Investors should be aware that the U.S. labor market will release non-farm payroll figures on Friday. The ADP employment report, which serves as a teaser of how the labor market performed, came in better than expected, with the US economy adding 534,000 jobs last month versus the forecasted 506,000. Today, investors will be paying close attention to the jobless claims report, which is expected to show 240,000 first-time filers, up from 199,000 in the previous report.
Over the past few days, investors have been in turmoil over conflicting news coming from government officials. On the one hand, with Omicron cases growing around the world and travel restrictions imposed as a result, the global economy is likely to slow down and may require assistance from the Federal Reserve to survive and avoid a market crash. On the other hand, the Federal Reserve is considering hastening the pace of tapering in an effort to fight inflation, and is attempting to make this strategy official as soon as its meeting this month. As a result, the volatility index, which measures investor apprehension, has risen to 31.12.
Amid the confusion, stocks positively correlated to economic recovery have taken a beating as can be seen from travel related stocks taking a massive dive. Similarly, the airline, hotel, and cruise industries all suffered losses in yesterday’s session.
Moving forward, news about the Omicron variant, about which we still don’t know much, and its potential effects on global financial markets will most likely be the primary driver of stock market sentiment. With each major economic report, such as inflation and employment data, stock markets are likely to remain extremely volatile, while businesses continue to seek solutions to complex supply chain constraints.
Investors should understand that regulatory oversight is a major concern for US authorities when it comes to cryptocurrencies. The puzzle is to create a framework that will potentially bring cryptocurrency traders and exchanges under formal regulatory laws that will protect Americans from fraudulent activities. Gary Gensler, Chair of the Securities and Exchange Commission (SEC), has been a vocal supporter of increased regulation in the blockchain space, and he reiterated his position yesterday.
Gensler believes that just because cryptocurrencies are classified as tokens does not mean they are not securities and thus should not be exempt from current regulatory laws. According to Gensler, digital currency exchanges, like traditional exchanges, will soon be required to register with the SEC.
Initially, crypto supporters saw Gary Gensler’s appointment as SEC Chair as a positive because they needed someone who understood what cryptocurrencies were and how they could help propel traditional finance to new heights. This idea gained traction because Gensler taught a blockchain course at the Massachusetts Institute of Technology and was also a part of a fintech company called Fintech@CSAIL, which specialized in disruptive technologies.
On Wednesday, data on crude oil stockpiles were released, revealing that inventories fell less than expected. As a result, gains were limited as investors deduced from the data that demand was weakening. Oil prices had already dropped by about $10 per barrel prior to yesterday’s crude oil report, owing to concerns about the Omicron variant. If the coronavirus situation worsens, lockdowns and restrictions may be imposed once more, potentially slowing global economic growth and denting rising oil demand.
Because of a change in the market environment, authorities in the United States have also indicated that they may postpone releasing oil supply from strategic reserves if oil prices fall dramatically. OPEC+ is also expected to make a decision today on its oil supply strategy for the coming months. As per its initial plan, the cartel would be adding 400,000 barrels per day, but it is now expected to pause or reduce its production until matters return to normalcy.
Gold prices have been falling over the last few days after Fed Chair Jerome Powell indicated increasing the pace of winding down the central bank’s quantitative easing measures, which would eventually mean that the Fed will likely raise interest rates sooner as well. As a result, treasury yields have been on the rise as rising interest rates mean coupon payments are becoming less appealing to investors, and hence the prices of treasury notes are declining. When treasury yields rise, the opportunity cost of holding the precious metal surges, making it less valuable for investors to hold gold. However, with markets in mayhem and investors’ behavior becoming extremely volatile, gold prices may increase if Omicron cases continue to rise.
Asian Pacific Markets
Asian Pacific stock markets are mixed in today’s session following Australia’s trade surplus of $11.22 billion (Australian) versus the expected $11.00 billion (Australian). As of 01.18 a.m. EST, the Nikkei dropped 0.46% and the Shanghai index slumped 0.06%. The Hang Seng index, in Hong Kong, surged 0.15%. The ASX 200 index dipped 0.09%, and the Seoul Kospi rose 1.02%.