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Daily Wrap Up 30 November 2021

30 Nov 2021 04:01 PM

Omicron variant casts doubt over rebound

Equity markets are down this afternoon as Stephane Bancel, the CEO of Moderna, cautioned that existing Covid-19 vaccinations might struggle to contain the omicron strain of the virus. The roll out of vaccinations was a major reason why governments decided to reopen their economies, which was the driving force behind the impressive rallies seen in global stock markets, but now the omicron story has upset the apple cart. The strain is still an unknown, and even though the symptoms appear to be mild, the possibility of the current vaccinations not working effectively against the variant has prompted dealers to sell stocks. Judging by the declines in the FTSE 100, the DAX and the S&P 500, traders are not overly worried about the comments from Mr Bancel, but they have been enough to sow the seeds for a bearish session. Seeing as the coronavirus and the prospect of tighter restrictions are on the radar, it is not a surprise that airlines like, IAG, Lufthansa and Air France are suffering. The hospitality and entertainment sectors have been hit too as they have potentially the most to lose in the event of restrictions being reintroduced. JD Wetherspoon, The Restaurant Group and Cineworld are down on the day.

Jerome Powell, the Federal Reserve chair, cautioned the omicron variant of the virus poses a downside risk to employment and uncertainty in relation to inflation and that contributed to a big fall in US government bond yields. The flight to quality play has driven down yields too. The US 10-year yield is 1.45%, and keep in mind it was above 1.66% last week. As a result of the moves in the bond market, the US dollar index has dropped by over 0.3% but keep in mind it was starting from a high mark, as last week it reached a new 16 month high. Part of the reason why the dollar is so weak is down to the strength of the euro. The single currency is outperforming following the news that headline eurozone inflation increased from 4.1% to 4.9% - a record high. The core CPI reading strips out volatile components like food and energy prices, and therefore it is deemed to be a better gauge of actual demand. The core CPI report increased to 2.6%, easily beating the 2.3% forecast. Keep in mind the core report was only 0.7% in July, so it is clear there has been a big uptick in demand in recent months, which should assist the recovery in the region.

Gold is shining today as a combination of the weaker US dollar and the broader risk-off sentiment has pushed up demand for the asset. The metal is up over 0.4%, it briefly traded above the $1,800 mark, and it has dragged up silver too.

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