Equity markets are moving cautiously higher on Tuesday, as investors await the plethora of central bank decisions in the coming days that could shape how we end the year.
Omicron has clearly added a huge cloud of uncertainty over the outlook for the economy in the coming months just as many countries were preparing for tighter monetary policy. Investors have appeared far more relaxed than politicians when it comes to the new variant which makes me a little nervous, as booster efforts are doubled in the run-up to Christmas.
The question this week is whether central banks perceive inflation or omicron to be the greater risk. The consensus view still appears to be that price pressures are driven by temporary factors that will largely correct over time but every month of inaction is a risk. This is why we will at least see some warn of impending action, while others will likely accelerate the process this week. And then there’s the CBRT.
Jobs report highlights the problems facing the BoE
The BoE is one that was widely expected to raise rates this week and today’s jobs report highlights why. The unemployment rate fell to 4.2% in the three months through to October, while wages rose by 4.9% in the same period and companies hired at a record pace last month. Clearly, the impact of the end of the furlough scheme was minimal which would have been the final box ticked for the MPC, had it not been for omicron.
While a rate hike could still happen this week, markets are not positioned for it and instead expect the central bank to hold out until February. With so much uncertainty over omicron, as it spreads rapidly throughout the UK, and whether more restrictions will be imposed, it makes little sense to act now without a clear picture.
Oil steady as we await omicron and central bank news
Oil prices are also stable ahead of the meetings this week. They’ve bounced back strongly on the back of the OPEC+ decision and reports of omicron symptoms being less severe, but a huge amount of uncertainty remains which has forced it into consolidation.
If risk appetite is given a boost by central banks this week we could see it push on higher but ultimately, the omicron data is going to be key. Politicians are clearly concerned and the rate of transmission is worrying. Further restrictions could weigh but traders will be all too aware that any drop in the price on this could trigger a sudden adjustment from OPEC+.
Gold consolidates ahead of the Fed
Gold prices remain in consolidation ahead of the Fed meeting tomorrow. It hasn’t really progressed for a few weeks now although it has settled towards the upper end of its recent range which may be encouraging for gold bulls hoping for a slew of dovish central bank announcements this week.
The Fed is still expected to accelerate its tapering this week but how gold reacts may well depend on how dovish the language around it is. It will be tough as the dot plot will likely show policymakers have turned much more hawkish in recent months which could weigh on the yellow metal.
Bitcoin is still seeing support around $47,000
Bitcoin had a rough start to the week and looks a little flat today as it continues to look for support around $47,000. It has seen support around these levels over the last couple of weeks, barring the flash crash 10 days ago, so this could be a key level for the cryptocurrency as it looks to find its groove again. A dovish Fed could excite the crypto crowd but that may be a lot to ask given the levels of inflation we’re seeing.
