The previous week ended ambiguously on the world markets. Europe and the United States closed in the negative zone, Chinese stock indices rose, and Korean and Australian stocks gained. Investors are still focused on two topics – one is the COVID-19 pandemic, or rather its sensational new strain Omicron in recent days, and the second is the expected start of the beginning of the process of raising interest rates by the Fed.
With regard to Omicron, something has already begun to clear up. South African epidemiologists say that for all the contagiousness of the strain and high mutational abilities, it does not cause a fatal outcome. If this is indeed confirmed by WHO studies, then this will be an important signal that the gradual degeneration of COVID-19 begins, followed by the cessation of the pandemic and the transition of this coronavirus into the category of seasonal flu.
How will such news influence the markets?
We believe that this will definitely lead to an increase in investors' optimism and will be the reason for an attempt at a new global rally in the world stock markets. Shares of those companies that have significantly lost weight amid the pandemic and are still under pressure will receive significant support. First, this will affect the securities of companies in the consumer sector, air carriers, as well as retail trade, and companies in the real sector of the economy.
However, the second problem is the risk of an earlier increase in interest rates, which is still hanging over the markets. With all the existing consensus that the Fed will definitely raise the rate next year, the timing of the start of this process will play an important role. In this regard, the publication this week of US consumer inflation data for November and the results of the December monetary policy meeting, which will be announced on the 15th, will be important.
If the data show a slowdown in the inflation growth, and this is forecast for November, then the Fed's rhetoric through its leader J. Powell about the prospects for the start of monetary policy tightening may be softened, which will definitely be assessed by investors as a good sign. As a result, this may cause a strong Christmas rally in the stock and commodity markets. At the same time, the dollar exchange rate will definitely be under pressure.
We are closely monitoring the aforementioned two factors. Any improvement in the news background regarding Omicron will encourage investors to actively buy in the stock markets. The real slowdown in the growth of inflation in the States in November and, if this process continues in December, which will become known in January, may serve as a basis for starting the process of raising interest rates at the earliest in mid-summer or later in early autumn next year. The shift in the probability of the timing of rates against the background of easing pressure from COVID-19 will favorably affect investor sentiment and will cause new growth in the markets accompanied by a weakening of the US dollar.
Forecast for the day:
The EUR/USD pair remains in the range of 1.1265 for now. If America trades in the negative zone today, the pair may locally rise to the level of 1.1375.
The USD/CAD pair is below the level of 1.2835. An increase in oil prices and an improvement in market sentiment will lead to the pair's decline to the level of 1.2730.