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Risk trades are struggling this week, and it’s difficult to see sentiment change much on a Friday, especially with omicron news still making the rounds.
Major currencies aren’t showing much hunger, but the dollar remains strong as the Fed continues to stoke the rate rise fire.
Notably, both the AUD/USD and the NZD/USD are making significant technical progress, with both pairs lurching downward to trade below crucial support from the August lows.
These are the most intriguing ones to watch before we get to the US non-farm payrolls, which should be a non-event but, given the Fed’s attitude, will be a litmus test in terms of confidence to proceed.
In other news, oil is remaining steady after OPEC+ chose to maintain its existing output policy. Oil prices fell in the headlines but have since recovered as bargain hunters continue to enter the market to position themselves for the medium-to-long term.
France
According to the French health ministry, there are already 9 verified omicron cases on the mainland.
The first two instances were discovered within the last 24 hours.
The ring here has a familiar melody to it since it sounds similar to how the delta variation got started. According to Jean-Francois Delfraissy, France’s senior scientific advisor, there should be a gradual increase in instances involving omicron, and it will likely overtake delta as the prevalent variety by the end of January.
Asia
Japan’s Prime Minister, Yoshihiko Kishida, has stated that new rules to improve supply chains will be introduced in parliament next year.
As far as government actions are required to fix these challenges (since monetary policy cannot), one must expect some compromise/sacrifice.
· China Caixin services PMI for November 52.1 (previous 53.8) • China’s ambassador to the US pushes for the elimination of tariffs on Chinese exports • RBA forecasts include the end of bond-buying in February and a rate increase in 2022
· The PBOC has fixed the USD/CNY reference rate for today at 6.3738. (vs. estimate at 6.3739)
· Google has put its January return-to-work plan on hold indefinitely.
· The November Japan services PMI was 53.0. (vs. 50.7 prior)
· OPEC+ will boost output in January as scheduled.
· Analysts predict that the RBA will raise interest rates in the first quarter of 2023. (from earlier expecting Q2 2023)
- A Chinese property developer’s bid to extend the maturity date of a $400 million offshore bond fails. • A new US COVID-19 law requires arriving travellers to take a test one day before departure.
- Five occurrences of the Omicron COVID-19 variant have been discovered in New York state.
- What to anticipate from the November US Nonfarm Payroll data, which is coming on Friday, December 3, 2021.
- Omicron responds to another internal border shutdown in Australia
- The United States and the European Union released a joint statement expressing grave concern about China.
- Markit Services PMI 55.7 in November in Australia (prior 55.0)
- Australia AiG Construction PMI for November 57.0 • Trade ideas thread – Friday 3 December 2021 (prior 57.6)
USA:
The United States Senate has voted to approve a measure to finance the government.
The day began with news that 5 COVID-19 Omicron cases had been detected in New York state, sending US equities index futures down. 5. S& P 500 futures fell on Globex.
Following a period of stability, stock index futures were sold down once more as the news of one instance in Hawaii and one in Los Angeles County accumulated. The decrease was not quite as severe as the Wednesday plunge into the cash market close, but it was visible nevertheless.
FX did not react strongly to the New York news, but it quickly followed the equities changes, with the USD rising versus the AUD, NZD, and CAD. EUR/USD, GBP/USD, and USD/JPY have been less significantly influenced, with very minor movements. The EUR/USD and USD/JPY pairs are scarcely net moved on the day.
In other developments from the United States, both chambers of Congress approved a measure for continuous government financing. Otherwise, the system would have been shut down. After US President Biden signs the law, money will be assured until February 18.
The formalized paraphrase “Recent events have added fresh upside risks to our wide USD projections. First, our economists now anticipate the FOMC to increase the pace of QE tapering and complete the process by mid-March, based on public statements by Fed officials. They also forecast three 25bp rate rises next year, rather than two (in June, September, and December, as opposed to July and November previously), and a two-per-year pace thereafter.
Second, the new covid type that is currently causing havoc in South Africa may pose fresh downside risks to the global economy, and hence upside threats to the safe haven Dollar. We haven’t changed our broad USD outlook today, but we will evaluate an upgrade in the next week.”
Concerns about Omicron may dampen the urge to maintain risk positions over the weekend.