Bears emerge as omicron woes return
Equity markets in Europe are largely lower even though they were showing solid gains for much of the day - which underlines the switch in sentiment. Creeping headlines about the omicron variant are weighing on traders’ minds. Weakness in the oil price has dragged down BP and Royal Dutch Shell, and in turn that has caused the FTSE 100 to underperform. The FTSE 100 might be lower today, but it is still much closer to the one-month high that was posted last week than the 10-week low that was registered in late November – at the height of the panic selling on account of the omicron story.
The rise in the US dollar is putting pressure on EUR/USD and GBP/USD. Late last week the greenback suffered a relatively large decline, but it is crawling back some of those losses. This week will be very busy as we will have interest rate decisions from the Federal Reserve, the Bank of England (BoE), and the European Central Bank (ECB). At the end of November, the Fed said it might look to speed up the tapering of its bond buying scheme, and that has helped the US dollar recently. By contrast, there is speculation the BoE might not lift rates this week on account of fears surrounding the new strain of Covid-19. Even though inflation in the eurozone is at an all-time high, it is unlikely the ECB will even drop any hints about tapering or increasing rates as several eurozone countries have reintroduced low level restrictions due to the coronavirus. Until all three central bank meetings are out of the way, volatility in the currency market is likely to be muted.
Gold is slightly higher today as the decline in the S&P 500 has encouraged some dealers to direct funds into the yellow metal due to its safe haven status. Any potential rally in gold is being curtailed due to the positive move in the US dollar. Industrial metals like copper and platinum are now down on the session because of the shift in sentiment to a more risk-off mood. WTI and Brent crude are losing over 0.8% each due to demand woes – there are fears the omicron variant might dampen the global recovery.