OANDA – December Rally Faded Already, Mixed US Data, Oil Pares Gains Post OPEC Meeting/EIA Report, Gold Rebounds, Bitcoin Higher Post Gensler
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US stocks were off to a good start in December as traders became both optimistic that Omicron would not lead to a more severe illness than the Delta variant and viewed Powell’s hawkish twist as more of a shift to the center. Equities pared gains after South Africa COVID cases nearly doubled since Tuesday and after their infectious disease official Richard Lessells noted it is too early to say Omicron only causes mild cases. The next couple of weeks will likely see risk appetite take a cue from incremental Omicron updates, supply chain issues, and every inflation reading. A second day of Powell at Capitol Hill saw him stick to his faster taper talk and uncertainty over when will inflation come down.
Stocks gave up most of their gains after the US confirmed its first case of the Omicron variant. We've seen this movie before and Wall Street will likely remain COVID variant headline driven until a clear assessment over this wave can be made.
US Data
The ADP private payroll report showed 534,000 jobs were created in November, a beat of the 525,000 estimate, but lower than the 570,000 prior reading. Leisure and hospitality jobs were over 30% of the positions added to the service sector, but that rebound could be in jeopardy if Omicron continues to increase.
The ISM manufacturing report was somewhat positive, but nothing to brag about as the headline index rose marginally from 60.8 to 61.1 and as both new orders and employment posted modest increases. Supply chain issues appear to be improving, but orders are still below their recent highs.
Oil
Crude oil prices pared gains after the EIA reported a small headline draw with crude inventories, but more importantly showed a massive build with gasoline and diesel stockpiles, a 100,000 bpd increase with US production, and a minimal rebound with exports. Nothing to really get excited from the EIA report, so WTI crude should consolidate here until tomorrow’s OPEC+ decision on output.
WTI crude returned to session lows after CDC identified its first Omicron case in the US. It was inevitable that Omicron would make it to the US, but when you combine how quickly it appears to be spreading across South Africa, energy traders are getting more concerned about the short-term crude demand outlook. With just under 30% of the US population being unvaccinated, nervousness about large parts of the country entering lockdown mode could grow if Omicron is proven to be much more transmissible than delta.
Crude prices may get a boost from OPEC+ delay in delivering an increase in output, but the Omicron variant will likely wreak havoc over the short-term demand outlook.
Gold
Gold is struggling here as Wall Street can’t agree on a clear path for the dollar following Fed Chair Powell’s hawkish pivot and mounting fears Omicron might disrupt growth over the short-term. Fed rate hike expectations are constantly moving as traders grapple with the question, can the Fed really signal rate hikes are imminent as the economy potentially faces another COVID wave?
Gold prices are facing plenty of technical resistance from the three key (200-, 100- and 50-day) SMAs and the psychological $1800 level. Real yields are rising today and that is another reason why gold can’t really benefit from the risk-off Omicron environment. Gold will likely consolidate here until the dollar takes a clear path.
Cryptos
Bitcoin is bouncing back alongside risky assets as crypto traders grow optimistic regulators will soon form crypto-banking guidelines that could help deliver the next wave of investment. Bitcoin extended gains after SEC reiterated calls for cryptocurrency exchanges to register with the SEC.
The cryptoverse is stuck in wait-and-see mode over what inflation will force the Fed to do and with how the regulatory environment will look. Cryptos are the top performing asset class again heading into year end, so any fears that the Fed may have to accelerate their rate hiking plans could prove to be short-term negative for Bitcoin and Ethereum.
Article By Edward Moya, OANDA
