The Safest Safe Haven

Friday has seen a certain selloff in the US equities, with Dow Jones losing the most among the three major indices. Nasdaq was hit the less with just a slight 0.07% loss into the close as investors weighed the rising omicron threat, and the risk of a bigger negative impact on the global economic recovery than first thought. Meanwhile the Federal Reserve (Fed) has little alternative but to tighten its policy fast enough to fight the overheating inflation and hope of seeing Joe Biden’s hope $2 trillion dollar economic package see the daylight one day is evaporating. So, the market mood is not great into the Xmas holidays. Plus, it will be a slow trading week, where we will see the trading volumes thinning, which could bring along some more volatility in asset prices.

US crude is down by almost 4% this morning, on news that the rising omicron cases could result in further travel restrictions, and even lockdown measures which would dent the oil demand in the coming weeks. The IEA warned last week that the global oil glut is set to surge in 2022, and a rising glut would result in lower oil prices in the short-medium run.

From a price perspective, if the price of US crude is unable to gain back the 200-DMA, which is a touch above the important psychological level of $70, we could see the selloff extend toward the $60 mark in the coming weeks. And the weakness in oil prices could well continue weighing on energy stocks. BP for example is feeling the pinch of Covid-related restrictions since a couple of weeks, and will likely test the 315-320p support to its actual positive trend.

Energy selloff should weigh on the FTSE 100 at the start of the week. Activity in FTSE futures hint at a decent selloff at the start.

In cryptocurrencies, the picture is as ugly as the overall market mood. Bitcoin bulls are bears are battling around the 200-DMA, and the overall lack of risk appetite is giving a hand to the bears. Cryptocurrencies are trading in parallel to the risk appetite right now, and in the absence of breaking news or impactful tweets, we could expect the negative pressure to continue. The next important technical level to watch in Bitcoin is $45000, a touch below this level, there is another major Fibonacci support on July-November rally, which could further call the death of the latest rebound.

With all the uncertainty, there is a certain safe-haven appetite in gold. The yellow metal is now testing the $1800 per ounce to the upside. I am still little convinced to see a sudden rebond in gold appetite, as the very low yields and the exploding inflation expectations couldn’t boost the gold demand over the past year. However, if there is a significant erosion in the risk sentiment and a further selloff across the risk assets, we could see gold cough back to life.

But the safest safe-haven is still the US dollar where the tighter Fed and the rising US yields support a positive divergence in greenback against other major central bank currencies, and some investors could find interesting to convert back to the US dollars to navigate the actual uncertainties.

Swissquote Bank SA
Swissquote Bank SA
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