Summary: New studies indicating less Omicron hospitalization from Scotland, South Africa and Denmark lifted market together with good Conference Board Consumer confidence data yesterday. It is still nervous trading and illiquidity continues. The revised Q3 data upped both GDP and the price indicators. GDPQ3 now at 2.3% while Price deflator is at 6%. Today's most important event is the US PCE inflation report for November.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities continued their momentum yesterday with Nasdaq 100 futures hitting 16,170 up 1.2% on more positive Omicron studies on its hospitalization rate compared to the Delta variant.
Energy crisis (OIL:xmil) - US IEA reported higher than expected draws yesterday and combined with the positive Omicron studies crude oil pushed higher yesterday together with equities. The German Baseload Forward 1-year contract closed at a new all-time high yesterday at €315/MWh but is coming a bit off this morning in Europe despite an outlook for colder weather in Europe.
USDJPY - the cross broke above the recent local resistance level at 114.26 in yesterday’s session before retreating, but this morning the cross is following the risk-on sentiment higher sitting at this important resistance level.
Gold (XAUUSD) - just as the market was preparing for more sell-off with gold starting yesterday’s session pushing below the 200-day moving average, the stronger EURUSD helped gold turn around pushing through all key moving averages. Gold is trading around 1,806 this morning with the 1,814 level in sight (the recent highs) should EURUSD extending its momentum.
US Treasuries (SHY, IEF, TLT). The US 10-year yield is settling just below the 1.5% level before the crucial PCE inflation report for November out later today. If the PCE inflation figure surprises to the upside, then we could see the 10-year yield push firmly above the 1.5% level.
USDTRY – the cross is pushing lower in a short-term victory lap for the Turkish government that has implemented several unusual measures to deal with inflation, currency swings, and economic problems. USDTRY is trading 11.67 in early European trading with the 50-day moving average sitting at 11.51 which the cross has not been below since mid-September.
What is going on?
JD.com shares down 8% on Tencent divestment. Normally this time of the year is quiet in the markets, but Tencent put out a surprise today announcing that they are divesting their JD.com investment and issuing a special dividend of $16bn. The divestment should be seen as a response to the ongoing technology crackdown with the large technology companies beginning to disentangle themselves from each other.
Scottish study shows Omicron has two-thirds hospitalization risk compared to Delta. Another study showing signs that Omicron is less virulent, but in the short-term health authorities are saying that less virulent multiplied by higher contagiousness equal more pressure on hospitals. But looking beyond the next couple of weeks the news flow could positive supporting risk assets.
Amazon’s cloud business (AWS) is targeted by FTC. AWS has always been the golden egg for Amazon delivering most of its profits and is the definitive market leader in cloud infrastructure. The question has always been to what degree AWS is taking advantage of this position against customers and to what extent the high profit margin in AWS is used to subsidize the e-commerce business helping it keeping prices incredibly low hurting other retailers with no cloud business.
Pfizer’s Covid pill gets FDA approval. The US FDA granted emergency use authorization for Pfizer’s Covid pill, which is the first antiviral drug against the virus for at-home use. Pfizer’s shares rose 1% to $59.55.
Ryanair cuts fiscal year earnings guidance. Underscores the uncertainty and negative impact from Omicron in the medium-term. The news will likely impact the entire travel and leisure segment in Europe in today’s session.
What are we watching next?
It’s already Christmas in the markets. Thin liquidity and mainly event driven moves over the course of the day. We expect these conditions to continue this and next week as we enter the final week of the year. The year has been mixed and as such some rotation towards defensive will likely happen. We have full focus on energy prices as a culprit for more inflationary pressure.
PCE inflation report on Thursday. This is the key event this week and today’s PCE inflation report will likely show that inflationary pressures persisted throughout November and supporting the FOMC decision last week to end the wording “transitory inflation” and signaling faster tapering and a path to three rate hikes in 2022.
Earnings Watch – no earnings this week and will stay light until the Q4 earnings season starts in mid-January.
Economic calendar highlights for today (times GMT)
0900 – Italy Consumer Confidence Dec
1330 – US Initial and Continuing Claims
1330 – US Personal Spending Dec
1330 – US PCE Core Deflator Nov (The Fed’s measure of US inflation)
1330 – US Durable Goods Orders Nov
1500 – US New Home Sales
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