This week, the market will focus on the high-impact economic events after rebounding from the Omicron fears last week. Central Banks in the US, Euro-zone, Britain and Switzerland will announce their last monetary policies of the year. Aside from the bank statements, investors will also watch out for inflation reports in the UK and Canada and speeches from a few central bank governors.
In the last week of November and the first week of December, investors were fazed by the Omicron Covid variant. Stock market and other risk assets plunged as investors took cover thus hiking bids for safe havens assets especially FX like CHF and Yen. The dollar also stayed firm for most of that time while Gold also got an earlier boost. Despite some travel restrictions, it was clear that another nationwide lockdown wouldn’t happen and the market relaxed from the sharp sell-offs across the board. Meanwhile, events that unfolded in the past one week caused a sentiment shift as expected as investors’ confidence came back.
First, Fed Chair Powell maintained a hawkish outlook as he looked forward to a faster taper timeline which could result in a rate hike in the first quarter of 2021. The US inflation report last week showed the fastest rise in 36 years. However, unemployment claims showed a recent record dip while the unemployment rate fell far below expectation. The world’s largest economy has seen an impressive recovery in the Labour market which is expected to encourage the Fed. With inflation not slowing down, the Fed will have to start looking at hiking interest rates and hope any emergent variant of the virus next year will not cause major setbacks.
OPEC+ unfazed by the Virus
Second, OPEC+ decided to continue with the 400k barrels per day supply addition in January. It had earlier proposed this in November after a hike in demand pushed prices to multi-year highs. The latest decision came despite the Omicron variant worries. That’s some gut! It further boosts investors’ confidence. This means OPEC did not expect any lockdown whatsoever although the latest travel restrictions and Omicron shock had put pressure on the Oil market ahead of their last meeting.
Pfizer boosts risk sentiment
Third, Pfizer announced that three shots of its vaccine will prevent the virus. This single headline has relaxed the market the most. The US equities market especially the S&P 500 is now close to a fresh record high. Global leaders and policymakers are now considering restriction reduction and others making plans to offer booster jabs as the holiday periods draw close.
What to expect this week
The market is expected to take a break from the Omicron variant this week as leaders ramp up efforts to curb its spread. More support for risk assets is expected this week. Aside from risk, there are a number of Central Bank events this week that will take investors’ and traders’ attention away from the virus. The year is about to end and investors will like to know the mind of the policymakers. It will all boil down to how fast the rate hike should be expected in 2022.
Macroeconomics and Central Bank Statements
There are no major big events on Monday. The following day, the US PPI figures will be released before RBNZ Gov Orr testifies before the Legislative Committee on Finance and Expenditure in Wellington.
FOMC to increase asset taper pace?
On Wednesday, the US Federal Reserve will give its monetary policy updates and economic projections – the last of the year. Federal Fund Rate is expected to be maintained at 0.25%. However, the market will look forward to some hawkish tone which includes increasing the pace of the current $15 billion/month taper. Meanwhile, before the event, BoC Gov Maclem will speak at a virtual meeting which is expected to be of high-impact watch for the CAD. Ahead of BoC, we have Inflation reports in Canada and Retail Sales data in the US.
A very busy day for traders – focus shifts to RBA, SNB, BoE and ECB
Thursday is the big day for the banks. RBA Gov Lowe will speak ahead of the Asian session. The bank kept its cash rate unchanged in its last meeting. An hour after, the Aussie employment report will follow.
Early in the London session, the Swiss Bank monetary policy assessment and conference will follow before the German PMI figures. Shortly before the New York market is opened, British monetary policy statements will lead the headlines before the ECB in less than an hour after. These bank events are quite close and thus volatility could jump if there are drastic hawkish or dovish policies or statements.
These banks are expected to make no changes. However, the market will react to excessive or unexpected hawkish or dovish statements. Market participants will want to decipher how close the banks are to the next rate hike and their planned response to Omicron ahead of the holidays.
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