Stock Market Today
US futures are up, while European futures are down as investors are wary of placing any bigger bets ahead of major events. There is no doubt that there isn’t much clarity in relation to central bank’s monetary policies as Omicron has thrown several obstacles in their way. For instance, it was pretty much given that the BoE was going to be the first major central bank to increase the interest rate but with the Covid threat, things have changed significantly. Central banks don’t want to shock the economic recovery and traders don’t want to be caught on the wrong side of the trade, especially when the S&P 500 index’s valuation are way too overstretched.
Investors should expect stock markets to be volatile in the remaining days of the week as central banks of massive economies like U.S., Europe, and England are expected to communicate their monetary policies this week. Although Federal Reserve’s hawkishness is likely to cause a pullback in stock markets, we still expect global economic growth in 2022 to be robust and pave the way for higher returns in equity markets.
In yesterday’s session, the Dow Jones Industrial Average fell 0.89%, while the S&P 500 index dropped 0.91%. The Nasdaq, the tech-savvy index, slumped 1.39% while the Russell 2000 dipped 1.42%.
Today, investors will be looking at Producer Price Index (PPI) data in the United States to see how inflation has affected prices of finished goods produced by manufacturers. Investors should understand that inflation is an important driver considered by the Federal Reserve before deciding its monetary policy. Hence, a rise in PPI is only going to support the Fed’s view of winding down its stimulus sooner.
Yesterday’s session was dominated by renewed concerns that the Omicron variant could impede economic recovery as infections from the new strain spread, with Britain reporting its first confirmed death from the new variant. This is likely to influence trading in the European session today.
As a result, growth linked sectors such as airlines and cruise operators are likely to continue to bleed as investors fear that stricter restrictions could curb travel in the short term.
iShares Russell 1,000 Value ETF fell 0.45% while iShares Russell 1000 Growth ETF dropped 1.22%.
The Fed is also expected to convene its two-day meeting starting today and is expected to publish a statement tomorrow updating traders with its quarterly economic forecasts for the United States. Updates or news related to interest rates and inflation is what investors should be closely monitoring to infer how equity markets will likely perform in coming months. Similarly, stock traders should also watch for commentary shedding more light on how and by how much the Fed plans to speed up its tapering process.
Last week, inflation data showed that consumer prices surged the highest in 40 years, but stock markets shrugged off the news and continued to pump money into stock markets. A similar type of reaction from investors is expected today with the PPI index data which is expected to come in at 0.5%, for November, declining modestly from the reading of 0.6% in October.
Moving onwards, despite the rise in inflation, 2022 is expected to be a good year for stock markets as companies will very likely be able to find solutions to supply chain bottlenecks and grow based on pent-up demand. Moreover, the labour market is showing remarkable improvement and rise in productivity will likely help the United States to surpass growth projections. Although there are risks that the Fed may make some kind some sort of mistake regarding its future policies, the overall environment is expected to remain supportive over the next few months.
It seems like the bears have taken control of crypto markets as Bitcoin, the king of cryptocurrencies, fails to breach the crucial $50,000 level and tumbled as much as 8.40% yesterday to $45,773. The drop in Bitcoin prices on Monday pushed the digital coin below its 200 days average, which is negative news for crypto enthusiasts. Similarly, Bloomberg Galaxy Crypto Index dropped about 7.40% which shows that sentiment in broader crypto markets has taken a hit.
The recent price action of cryptocurrencies disputes the argument that the blockchain space has finally matured, because of which extreme volatility in markets will likely decrease moving forward. However, this does not seem to be the case. Similarly, some investors consider digital coins to be a hedge against inflation, and rising consumer prices were to some extent able to provide some support to crypto markets last week. However, crypto markets were not able to sustain the rally.
Prices for crude oil rose modestly but gains were capped because investors are worried that oil prices could take a hit over the next few days as fresh restrictions are implemented in Asia and Europe due to rise in COVID-19 cases. Recently, Norway and Britain have tightened controls and the United Kingdom has communicated its first Omicron caused death which has spooked investors. Similarly, the Zhejiang province in China, dominated by manufacturing, is also facing an uptick in coronavirus cases due to which the province has cancelled flights and postponed events.
Investors should note that rising inflation has been supporting prices of the precious metal as it is a safe-haven commodity which rises in times of uncertainty and volatility. However, central bank meetings to be held this week are likely to be the biggest drivers of volatility for gold as hawkish monetary policies, as expected by the Fed, could push gold prices down.
The biggest factor for the U.S. dollar this week is the Federal Reserve’s meeting, which investors believe will provide more details regarding the Fed’s plans to speed up tapering and some information related to interest rate hikes in 2022. Similarly, a higher PPI reading may cause the US dollar to rise, as a higher PPI will only help the Fed raise interest rates sooner.
Similarly, a meeting by the ECB is also likely to indicate the end of its massive stimulus, $2.09 trillion, by next March. However, due to rising COVID-19 cases, the ECB may postpone its timeline until the European economy stabilizes, which would likely push the euro down.
Asian Pacific Markets
The Asian Development Bank (ADB) reduced its projections for economic growth for Asia due to the emergence of the Omicron variant and surging COVID-19 cases, which could trigger a fresh spree of controls and lockdowns taking a toll on economic growth of Asian countries. According to ADB, GDP in Asia will rise by 7% in 2021, dipping from its initial forecast of 7.1% communicated in September. Next year, Asian GDP is expected to surge 5.3% versus the previously projected 5.4%.
As of 12.40 a.m. EST, the Nikkei dropped 0.83% and the Shanghai index dipped 0.33%. The Hang Seng index, in Hong Kong, declined 1.23%. The ASX 200 index fell 0.01%, and the Seoul Kospi slumped 0.54%.