Week ahead: market insights for the 6th of December
Another eventful week for markets!
Lots of uncertainty about the omicron variant injected some volatility into markets, with a wide range of outcomes. It might be able to evade vaccine protection or it might not be as bad as first feared, nobody knows for sure and more data should be available this week.
Either way, the Federal Reserve has seen enough. Time to speed up the taper and hike rates.
Take the punchbowl away, this party’s out of control!
Or at least, that’s what they were saying before Non-Farm payrolls missed expectations (210k vs 550k expected) on Friday. Under the surface though, the employment picture is steadily improving.
Federal Reserve officials were openly talking about tapering faster this week, with Mary Daly (usually considered a dovish member) even suggesting it was time to think about rate hikes. The rush to get the comments in ahead of the blackout period hints at a Fed that’s ready to move fast, maybe announcing a faster taper as soon as the December 15th meeting.
Key data & events next week include the Chinese trade balance, Australia’s central bank meeting, German ZEW. We’ll also be keeping an eye on Canadian trade & PMI data, and UK GDP.
The main event is US inflation on Friday. The Federal Reserve is at the point of capitulation on the easy money policy. Inflation is uncomfortably high and they’re getting ready to turn. Another high inflation reading keeps the pressure on them to act faster.
- Chinese Trade
- RBA Meeting
- German ZEW
- Canadian Imports/Exports & Ivey PMI
- UK GDP
- US & China Inflation
Europe’s ‘Blue Chip’ stock index (EU Stocks 50) gapped down aggressively last Friday. Ever since, the index has been consolidating just above the 200 day moving average.
Is this it for 2021… The end of the bull market? Let’s take a look at the chart
What do we notice?
Each time the market gaps significantly lower, price tends to return and fill that gap soon after… I’ve highlighted the previous occasions with blue boxes. Even though a gap fill doesn’t seem to hold any lasting directional signal, it’s definitely something to keep an eye on, especially if risk sentiment picks up...
Also of note for the Euro Stoxx 50 index is the news this week that Vodafone & Universal Music Group will be replaced by Hermes & Richemont on December 20th. Hermes shares have gained almost 90% in 2021, and Richemont (owns of brands such as Cartier and Piaget) has also seen it’s shares surge to record highs this year.
The two luxury names will be joining the likes of Louis Vuitton in the benchmark European stock index.
Shell has been in the news a lot lately, with attention focused on the recent decision to ditch the dual share structure, and move its head office to London.
On Thursday, Shell launched a $1.5bn share buyback that would last until the 28th of January. The share price had been falling lately, but the news seems to have been positively received…
They plan further buybacks of another $5.5bn through 2022.
This all comes on the back of their $9.5bn sale of their Permian Basin operations to ConoCoPhillips and a commitment to return cash to shareholders. As with many of the big energy firms, Shell is looking to divest away from fossil fuels and move further into renewable energy
It’s an extra tricky period for energy giants, as they need to balance near term energy demand (that renewables will not arrive in term to fully serve), with the longer term shift away from fossil fuels.
Reuters reported this week that Shell is eyeing a return to Libya with oil, gas & solar investments. After a decade of conflict and unrest, a new unity government has just taken office. A more stable business environment would certainly be attractive, and there’s no doubting the strategic resources available in Libya.
Let’s take a look at the Bitcoin chart first…
I’ve highlighted a few points around the 57,500 area. Earlier in the year this zone was used as resistance, before pushing up to the April high above 64,000. Then, price fell back & retested from below before collapsing right down to the 30,000 area.
Bitcoin has since retraced the entirety of the move, recovering the 57,500 support zone, testing it from above and posted another new high above 68,000.
Has it run out of steam? The 57,500 battleground is definitely the zone to watch.
What else is going on?
Well, there’s not often much to say about the fundamentals of crypto. However, there’s zero doubt that it’s one of the higher risk asset classes. Many argue that crypto operates independently of the traditional financial system. We’re about to test that thesis…
The further that employment recovers, and the stickier inflation remains, the faster the Federal Reserve is likely to tighten policy.
The Fed only announced the taper on November 3rd. In the space of a single month, Fed officials have rapidly changed tone, with the commentary centring on a faster taper and even the idea of rate hikes being introduced.
Seeing how crypto reacts as the Federal Reserve withdraws monetary support will be a true test for crypto evangelists to overcome.
*NGMI = Not Gonna Make It
US CPI will be released on Friday ahead of the Federal Reserve meeting next Wednesday. Remember, the Fed’s mandate is to "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates"
Today’s NFP of 210k is another step towards full employment. If you want to track the Fed’s view of progress, keep a close eye on the prime-age EPOP ratio.
That’s the share of workers aged 25-54 with a job, and it’s especially important now because of the uncertainty surrounding the number of Covid retirees.
It jumped by 0.5% this month to 78.8% and is closing in on the pre-pandemic level of 80.5%.
Progress on employment combined with another high CPI print pushes the Fed further towards a fast response and shifts the focus away from jobs and more towards slowing inflation and improving price stability.
Not investment advice. Past performance does not guarantee or predict future performance.
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