Weekly market report – 13 Dec 2021

US Indices

Source: Bloomberg

It was a good week for the US Indices. Fears related to the Omicron variant seemed to be abated with initial studies by BioNTech and Pfizer showing a booster shot would be effective against the virus. The S&P 500 and the Nasdaq Composite recorded their best weekly gain since February, whilst the Dow Jones recorded its best weekly gains since March. The US Large Cap growth stocks outperformed the value stocks, mainly driven by Information Technology stocks such as Apple (AAPL) and Cisco Systems Inc (CSCO).

The main highlights of last week included:

• The CPI report released on Friday, 10 Dec 2021 showed the inflation rate came in at 6.80%, the highest level since 1982. However, excluding the categories of food and energies, the inflation rate was at 4.90% — in line with expectations.
• The labour market has also shown signs of improvement, with the rate of unemployment below 4.20%. Prior to the release of the CPI report, the yield on the 10-year note was high but then flattened.
• The 10-year Treasury Yield was at 1.49%, up 1.34% from last Friday, 10 Dec 2021. However, it is far below the recent high of 1.68%. This data may reflect the fact that higher inflation could lead to a faster tightening of the monetary policy by the Fed. 

This week, the focus is on the Federal Reserve meeting on Wednesday, 15 Dec 2021, as this is the last one for the year and based on comments from the Fed Chairman Jerome Powell, the Central Bank may speed up the taper of its $120 billion monthly bond purchases to tackle the surge in inflation. The Fed is expected to provide economic projections on growth, inflation and unemployment levels.

Forex

Source: Bloomberg

Investors bet that even if inflation rose higher than expected, the interest rate hike pace would remain the same in the wake of Friday’s CPI report. The dollar lost ground after consumer prices rose approximately in line with expectations in November.

As the UK tightens its coronavirus restrictions once more, the pound is headed for its first yearly loss since 2018. Prime Minister Boris Johnson is encouraging people to work from home to prevent the spread of Omicron. This measure has stoked fears about the country’s sputtering economy and forced traders to pare back their bets on an interest rate hike, which just weeks ago looked like a done deal. 

A shift in sentiment has seen the pound retreat to the $1.33 level against the dollar. The GBP/USD is trading close to its support level near $1.31 at 61.8% retracement level, followed by the next support level near $1.28 at 50% retracement level.

It is, however, the Bank of England’s monetary policy decision that will get the most attention this week. Final policy decisions of the year are also to be made by the Federal Reserve and European Central Bank this week. While parts of Europe experience far stricter lockdowns, there is little doubt the European Central Bank will remain dovish. 

Commodities

Source: Bloomberg

Oil markets let out a sigh of relief upon hearing that the Omicron strain may not hinder global demand as potently as originally feared. With recent demand remaining stagnant and global crude inventories well below their 5-year average, oil markets appear to be at a temporary sweet spot, with Brent Crude and WTI trading around the $75.00 per barrel and $72.00 per barrel mark, respectively.

Both Brent and WTI Crude benchmarks broadcast gains of around 8% last week, their largest weekly gains since late August. This occurred whilst several downside risks are still weighing on the horizon. Weak international air traffic and rising covid cases across Europe may still be looming in the eyes of investors, but soaring US inflation figures are adding to oil’s bullish sentiment, largely counteracting the above-mentioned risks.

Investors will keep an eye on whether WTI crude can break through its first major resistance level around $74.00 at the 78.6% retracement level. Looking downwards, its first major support level lies around the $65.00 level at 61% retracement, followed by its second support of approximately $59.00 per barrel at the 50% retracement level.

In the metal markets, gold prices gained momentum on Friday, 10 Dec 2021 although not enough to stop its fourth straight weekly fall. Investors kept to the sidelines ahead of November’s 40-year high Inflation figures that could influence the Fed’s next changes to monetary policy.

Gold gained 0.1% to hit $1,776.23 per ounce, whilst bullion prices dropped 0.4% as rising inflation and a strengthening labour market left investors inclined towards caution. Should the Federal Reserve decide to further accelerate the pace of its asset purchases in line with the interest rate hikes, it could impact the future price of gold.

Cryptocurrency

Source: Bloomberg

The crypto market continued to slump after last week’s minor crash, as investor sentiment hit its lowest levels since July 2021. Bitcoin (BTC), Ethereum (ETH), Solana, (SOL), Binance Coin (BNB) and Cardano (ADA) were all down between 1-5% on Friday, 10 Nov 2021 from the previous 24 hours. These combined losses wiped around $100 billion from the overall cryptocurrency market, pushing its total capitalisation back below $2.3 trillion.

Bitcoin’s disastrous declines over the first weekend of December extended to trading on Monday, 6 Dec 2021. After losing almost a fifth of its value at one point, Bitcoin absorbed a 5% fall to begin the trading week.

A volatile period for the world’s largest cryptocurrency saw its value swing from gains to losses and back to gains on Friday after the release of key US inflation data showed consumer prices to be rising at their hottest rate in almost 40 years.

Bitcoin ended lower on Friday, down 0.82% to end the day around $47,200. Over the week, it was left stranded for its fourth consecutive weekly decline. In comparison to previous $100,000 year-end forecasts, or even a return of last month’s record high of $69,000, the popular digital asset is struggling to play out the festive season as investors initially imagined. 

However, over the weekend session with Saturday’s rally, Bitcoin was able to rebound, shooting through its first key resistance around $48,740, and placing its new resistance at the $53,460 mark at the 61.8% retracement level.

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