Financial markets have been on a rollercoaster ride since the middle of last week. We wanted to believe we were getting close to the end of COVID, but the latest jitters from Omicron variant signaled the inevitable COVID winter surge might already be here. Omicron is the latest COVID test for the economic outlook and we won’t have a clear picture until a couple more weeks. Friday’s turmoil looked a lot worse given the lack of liquidity, options volatility and overall frothy levels for equities.
US stocks are rebounding as optimism grows that the Omicron variant is a cause for concern, but not a 'cause for panic' and could potentially be the catalyst needed to get more of the country vaccinated. Investors will learn over the next couple of weeks if the Omicron variant causes more severe disease than the other variants. So far the MRNA vaccines have proved effective against other variants such as delta and optimism is that even they will eventually need to get tweaked that could be done in a few months time.
Risk appetite got a boost from both the Pfizer CEO and President Biden calmed markets nerves that we won't go back to the darkest days of the pandemic. The Pfizer CEO Bourla said he thinks the data will ultimately show the current vaccine will protect less against Omicron but will likely still offer some protection. President Biden said the US won’t need shutdowns to curb the Omicron variant.
US Data
Pending home sales unexpectedly surged in October as rents skyrocketed and buyers were highly motivated as borrowing costs seem poised to increase steadily as the Fed positions itself to raise rates. US pending homes sales increased by 7.5% from a month earlier, which was a 10-month high.
The Dallas Fed Manufacturing Survey came in slightly below expectations, but still showed manufacturing activity is healthy and the outlook has dramatically improved. The index for general activity came in at 11.8, a miss of the 17.0 consensus estimate and drop from the 14.6 reading in October. The six-month outlook almost doubled to 28.6, while the raw materials price index hit a series high.
Oil
Oil prices rebounded for two key reasons: the Omicron variant seemed like it would most likely be short-term disruptive to the crude demand outlook and on growing expectations that OPEC+ will refrain from increasing production by 400,000 bpd.
The Chairman of the South African Ministerial Advisory Committee on Vaccines noted that the cases so far had all been mild, mild -to- moderate which was a good sign. As long as South Africa does not see a massive uptick in hospitalizations, optimism will grow that this new variant won’t lead to a wrath closing of borders. Highly vaccinated countries will continue to thrive and political pressure will grow to get those countries with low vaccination rates more supplies.
OPEC+ pushed their meetings to better assess the impact of the Omicron variant, which will most likely be followed by a delay in delivering an extra 400,000 barrels a day in January. Following the global strategic reserve releases and the announcement of dozens of countries restricting travel to and from South Africa and neighboring nations, OPEC and its allies can easily justify an output halt or even a slight cut in production.
Crude prices gave back some its gains after US State Department advisor reminded traders the US could release more oil.
Gold
Gold prices remained heavy as Omicron panic eased, the dollar rally returned, and after another round of strong US economic data. Wall Street is quickly shaking off last week’s de-risking theme that triggered safe-haven demand for bullion. President Biden said economic lockdowns in response to the Omicron variant are off the table, which means gold could be in trouble if this latest variant mostly yields longer supply chain issues that might fuel the 'inflation is persistent' argument. If supply chain issues deteriorate even further, that could lead to faster tapering and quicker rate hikes by the Fed.
Cryptos
Cryptocurrencies are rebounding after last week’s widespread panic-selling from the Omicron variant blew past many stops. The crypto selloff was an overreaction and buyers are quickly reemerging as traders reassess the impact of a new coronavirus variant. Bitcoin is a part of today’s broad risk rally that stemmed from easing COVID fears but will likely struggle to completely get its groove back until vaccine efficacy results in the coming weeks confirm highly vaccinated countries are going back to lockdown mode.
Bitcoin rose 3.5% to $58,284, which makes the year-to-date gain at 101%. Ethereum is back above $4400 and is almost 500% higher this year. The top two cryptos seem like they may consolidate here, but if the Fed accelerates their taper plans and prospects of rate hikes grow, a return to record highs seen earlier in November will be hard to do.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Recommended Content
Editors’ Picks
EUR/USD trades sideways below 1.0450 amid quiet markets
EUR/USD defends gains below 1.0450 in European trading on Monday. Thin trading heading into the Xmas holiday and a modest US Dollar rebound leaves the pair in a familair range. Meanwhile, ECB President Lagarde's comments fail to impress the Euro.
GBP/USD stays defensive below 1.2600 after UK Q3 GDP revision
GBP/USD trades on the defensive below 1.2600 in the European session on Monday. The pair holds lower ground following the downward revision to the third-quarter UK GDP data, which weighs negatively on the Pound Sterling amid a broad US Dollar uptick.
Gold price sticks to modest gains; upside seems limited amid USD dip-buying
Gold price attracts some follow-through buying at the start of a new week and looks to build on its recovery from a one-month low touched last Thursday. Geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East, along with trade war fears, turn out to be key factors benefiting the safe-haven precious metal.
Let’s focus on the good for a few more days
Last week was chaotic. The Fed’s hawkish 25bp cut, the hint from the dot plot that there would be only two rate cuts next year instead of four – because the US economy is too strong to continue the cuts as previously predicted - and the US debt limit shenanigans even before Trump took office gave a negative jolt to the US stock markets.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.