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Daily Wrap Up 14 December 2021

14 Dec 2021 04:20 PM

Covid concerns circulate, dollar dips  

There are concerns about the rate at which the omicron variant of the coronavirus is spreading, hence why stock markets in Europe and the US are in the red. There have been updates with regards to restrictions that have given traders cause for concern. New rules about socialising have been announced in Scotland, and the Italian government confirmed that all EU travellers will have to take a Covid-19 test to enter the country. Compared to rules that were imposed this time last year, these constrains are light, but dealers fear that things might get worse from here. The scale of the declines seen on the FTSE 100, the DAX and the Dow Jones are reasonably small when compared with the losses incurred in late November - when the omicron story hit the headlines, so that suggests the fear factor isn’t too high for now. It is worth remembering that stock markets registered multi-week peaks in the past week, so the sell-off seen in the last few sessions was starting from a relatively high point.

Inflation has been in the news a lot recently due to the sharp rise in the cost of living. Today, the US PPI reading surged to 9.6%. PPI is often a leading indicator for CPI because if costs are rising at the factor level, they are likely to be passed onto the consumer. Even though the PPI level topped the 8.6% forecast, the US dollar is weaker this afternoon as it seems that some traders are squaring up their books ahead the tomorrow’s all important Federal Reserve update. Last month, Jerome Powell, the Fed Chair, said that central bankers might look to speed up the rate it is tapering its bond buying scheme. In the current climate it is possible the bank will adopt a wait and see strategy considering the uncertainty surrounding the omicron variant. The Fed have already taken the major step of trimming its bond buying scheme, so should they decide to ramp up the speed, they might put themselves in a tough position if the new strain of the virus derails the economic recovery.

Gold is suffering a similar fate to the US dollar as market participants are booking profits ahead of the Fed meeting. In recent months, the metal’s price action has been very sensitive to the commentary from the central bank and prospect of tapering being carried out at a faster rate is hanging over the asset. The general risk-off environment as a result to the omicron fears is hurting WTI, Brent crude oil, copper, and platinum.

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