On Monday, the US stock indices closed on a positive note but began a sharp decline today amid news that the Omicron strain of the virus is resistant to existing vaccines. According to the WHO, the probability of further global spread of the Omicron coronavirus strain is high.
Many analysts already agree that stock markets are no longer in fear of stimulus cuts and interest rate hikes at the moment. Because of the Covid-19 “sudden” mutations, stimulus cuts and rate hikes can be delayed – indicating that inflation will continue to rise over the medium term.
Japan and Israel were among the last countries that closed their borders to foreign travelers after the WHO officially recognized the Omicron virus variant as a global risk. No Omicron-related deaths have been reported, but more than 10,000 cases have been reported in South Africa this week.
Yesterday, Fed Chairman Jerome Powell said that the Omicron strain is creating more uncertainty for the inflation outlook. This could slow progress in the labor market and strengthen problems in supply chains in turn. The Fed will use all tools to strengthen the economy and the labor market and ensure that higher inflation does not occur. At the same time, Mr. Powell hinted that inflationary pressures will continue next year.
European stock markets increased in yesterday’s trading. French CAC 40 (FR40) gained 0.5%, British FTSE 100 (UK100) added 0.9%, German DAX (DE40) increased by 0.2%, Spanish IBEX (ES35) jumped by 0.7%. Inflation in Germany increased to 5.2% in November, the highest level since June 1992, surpassing the estimate of 5%. Investors’ attention is now focused on the Eurozone inflation figure, which will be published today. Analysts expect the consumer price level in Europe to rise to 4.5%. The European Central Bank is likely to continue its bond buying program (PEPP) over the next year to stimulate the region’s economy, ECB Vice President Luis de Guindos told French newspaper Les Echos on Tuesday. The comments indicate that there will be no rate hike next year because the ECB’s directive states that any interest rate hike will take place “shortly after” the end of quantitative easing. This means that there is no fundamental reason for the Euro to strengthen.
OPEC+ postponed monitoring meetings to assess the impact of the new coronavirus strain on oil. Oil prices continued to decline at the opening of trading Tuesday on news that a new variant of the Omicron virus is resistant to vaccines. This adds to fears that there could be an excess of supply in the first quarter of next year.
Asian stock markets fell sharply in late trading today as investors fear that the Omicron variant could cause broader global economic shocks. Japan’s Nikkei Index (JP225) decreased by 1.63%, Hong Kong’s Hang Seng Index (HK50) lost 1.8%, while Australia’s ASX 200 (AU200) added 0.22% as the Australian dollar declined sharply as a risk category currency. As a rule, major country indices are inversely correlated with the exchange rate of the nation’s currency.
Main market quotes:
- S&P 500 (F) 4,655.27 +60.65 (+1.32%)
- Dow Jones 35,135.94 +236.60 (+0.68%)
- DAX 15,280.86 +23.82 (+0.16%)
- FTSE 100 7,109.95 +65.92 (+0.94%)
- USD Index 96.27 +0.18 (+0.19%)
Important events for today:
- Japan Unemployment Rate (m/m) at 01:30 (GMT+2);
- Japan Industrial Production (m/m) at 01:50 (GMT+2);
- China Manufacturing PMI (m/m) at 03:00 (GMT+2);
- German Unemployment Rate (m/m) at 10:55 (GMT+2);
- Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
- Canada GDP (q/q) at 15:30 (GMT+2);
- US Chicago PMI (m/m) at 16:45 (GMT+2);
- US CB Consumer Confidence (m/m) at 17:00 (GMT+2);
- US Fed Chair Powell Testifies at 17:00 (GMT+2);
- US Treasury Secretary Yellen Speaks at 17:00 (GMT+2);
- US FOMC Member Williams’s Speech at 17:30 (GMT+2);
- US FOMC Member Clarida’s Speech at 20:00 (GMT+2).
