- COVID variant keeps markets on edge
- Volatility remains
- The dollar steadies
Key Events
As European shares followed the lead of yesterday's performance on US markets and opened in the red, US futures on the Dow, S&P, NASDAQ and Russell 2000 advanced in trading on Thursday ahead of the New York open. This divergence is symbolic of the rapidly changing views of traders on the Omicron variant of COVID-19 as well as tightening US monetary policy, and explains why volatility has increased in recent days.
Bitcoin remains under pressure while oil jumped.
Global Financial Affairs
Value stocks dominated US futures trading this morning with contracts on the Dow, which lists blue-chip, mega cap stocks, up almost a full percentage point while contracts on the Russell 2000, whose small caps rely on an open economy to thrive, were the second-best performer, up about 0.6%, as of the time of writing.
On the other side of the reflation trade, futures on the tech-heavy NASDAQ 100 lagged, up a mere 0.3%.
Tech's underperformance was even more noticeable in European trading, where it weighed on the STOXX 600 Index, which fell more than 1% amid fluctuations. Travel shares also slumped as traders readjust portfolios for potential additional coronavirus restrictions, as the latest mutation of COVID-19 shows up across the globe, including in Australia, Norway, South Korea and Ireland.
It's interesting to see the pessimism expressed in the European session even when there has been some positive news on the virus front. GlaxoSmithKline (NYSE:GSK) reported its antibody treatment shows signs of effectiveness against Omicron in the early testing stages.
Moreover, the World Health Organization announced vaccines would probably prevent severe cases of the strain. Finally, Australia's chief medical officer said there's no evidence that Omicron is any deadlier than previous variants.
On Wednesday, US traders witnessed the worst back-to-back selloff since October 2020 after the US identified its first case of the new COVID variant. During a wild session which saw high trading volume, the S&P 500 wiped out its early gains in the sharpest reversal since April to close down 1.2%. Sectors most sensitive to an open economy took the biggest hit.
The Russell 2000, home to small cap companies, plunged to close down 1.8%. Airlines, cruise operators and hotels underperformed, as COVID-19 cases nearly doubled in South Africa in one day.
Treasury traders took profits, allowing yields to rally after investors flocked to the haven yesterday, pushing yields on the 30-year note below 1.75%, its lowest since January.
The long bond's yield completed an H&S continuation pattern, suggesting investors' appetite will increase for Treasuries.
The dollar was little changed.
The greenback could develop a falling channel, bullish after the preceding leg up, or an H&S top. This is why it is essential to wait for the pattern completion and see how the breakout goes.
Gold is testing the waters below a rising channel.
If the price closes at these levels, it may signal a change in direction. Yesterday, the yellow metal rallied and the dollar fell on gold's haven status. It seems that investors are now refocusing on the Fed's tightening monetary policy.
Bitcoin edged lower.
However, the crypto token remained above its uptrend line.
Oil rose as many analysts expect OPEC to pause its production increases when it meets. There may also be a technical explanation for the rally.
The price bounced off an uptrend line for the third day in a row, finally able to ratchet enough momentum to create gains, after two days of losses on the heels of the 12% plunge recorded Friday when Omicron first hit the news cycle. However, the price has been falling back to the same trend line, with the lows unable to keep up the pace of the troughs, which increases the risk of a trendline violation.
Up Ahead
- The UK announces composite PMI figures on Friday.
- On Friday US nonfarm payrolls are published.
- Canada reports employment figures on Friday.
Market Moves
Stocks
- The STOXX 600 fell 1%
- Futures on the S&P 500 rose 0.6%
- Futures on the NASDAQ 100 rose 0.5%
- Futures on the Dow Jones Industrial Average rose 0.6%
- The MSCI Asia Pacific Index rose 0.2%
- The MSCI Emerging Markets Index rose 0.6%
Currencies
- The Dollar Index fell 0.1%
- The euro was up 0.19% at $1.1340
- The Japanese yen was up 0.17% to 112.93 per dollar
- The offshore yuan was little changed at 6.3731 per dollar
- The British pound rose 0.4% to $1.3333
Bonds
- The yield on 10-year Treasuries advanced four basis points to 1.45%
- Germany's 10-year yield was little changed at -0.34%
- Britain's 10-year yield was little changed at 0.82%
Commodities
- WTI crude climbed 2.65% to $67.28 a barrel.
- Brent crude rose 1.6% to $69.98 a barrel
- Spot gold fell 0.6% to $1,770.72 an ounce