Australian shares recorded its biggest weekly loss in three weeks as concerns surrounding the spread of the Omicron variant and policy tightening by Central Banks in US and Europe triggered volatility across global equity markets.
Adding to uncertainty, Pfizer said on Friday the pandemic could extend through next year. European countries geared up for further travel and social restrictions and a study warned that the rapidly spreading Omicron coronavirus variant was five times more likely to reinfect people than the Delta strain.
While energy and gold miners were positive influences on the market the technology companies were a dead weight. The US regulators holding a probe into buy now pay later companies pushed Afterpay, Zip and other BNPL companies down.
On the other end of the spectrum gold miners posted strong gains for the week with North Star Resources jumping 5.6%, Evolution Mining adding 4.2%, Newcrest Mining rising 3.7% and Regis Resources firming by 3.5%. The gold price has benefitted on recurring inflation worries and increasingly hawkish commentary from global central banks last week.
Looking ahead the rising cases of Omicron and lockdown in European nations is expected to push Australian shares further in the red with energy and iron miners likely to drag on reduced economic activity.
Moving ahead there are a few releases to watch out for in the lead up to Christmas with the Reserve Bank Board minutes to be released on Tuesday, weekly payroll jobs and wages on Wednesday and private sector credit on Thursday.
While the equities market recorded loss last week gold recorded its first positive week in five and rallied past the key $1800 level as worries about surge in Omicron cases and hot inflation drove investors to safe haven assets.
With growth expected to slow into next quarter and shares market correcting off their highs on Omicron rise it seems investors are panicking out of equities into safe haven assets like gold.
The US Federal Reserve on Wednesday signalled three interest rate hikes in 2022. Typically the announcement should have weighed on gold prices as higher interest rates increase the opportunity cost of holding the non-yielding yellow metal.
The bullion however marched higher because most analysts and traders have already factored in interest rate rise prospects before the announcement.
With the outlook for 2022 remaining clouded we expect the gold prices to continue trading up in the short term with support at US $1785 and resistance at US $1820 per ounce.
Oil prices were down for last week as surging cases of the Omicron coronavirus variant raised fears that new restrictions may hit fuel demand.
There are concerns about COVID that won’t go away and the perception that could weigh on demand is putting pressure on the market.
The number of new Omicron cases has been doubling every two days in Denmark, South Africa and England. Netherlands entered into full national lockdown on Saturday. In US, the rapid spread of the Omicron variant has led some companies to pause plans to get workers back into offices.
As such with increased Omicron threats to demand we could see further consolidation in US Crude prices around $70 in the coming sessions as we learn more about Omicron, what restrictions it will bring and how OPEC+ nations react to it.
Moving on to currency markets, the Australian dollar went back and forth throughout the week as traders were not sure where we are going in the near term. That being said the local currency eventually settled down against the US Dollar as markets start showing signs of hesitation.
Australian dollar is highly correlated to risk appetite and commodities. On the other hand the greenback is considered to be a safety currency. Hence it makes more sense with markets running towards the US dollar when there are more concerns in the market.
Looking at the charts it seems that he 0.70 level is extremely important and should continue to offer support over the longer term. If it were to break however, then the local currency is likely to drop significantly towards the 0.68 level.
On the other hand a break above the top of last week can open the possibility of a move towards 0.7 and then even 0.74 level.
The Indian Rupee too continued to fall against the US Dollar closing at 76.08 on Friday as foreign fund outflows continue amid uncertain global cues post the central bank’s policy outcome and rising coronavirus cases.
In digital currencies world Bitcoin continues its struggle to get past US $50,000 mark. The digital currency has had a dull December so far with price continuing to range trade between $46,000 and $50,000.
The digital currency market seems to be in consolidation phase with BTC struggling to reclaim the key $52,000 level that will reconfirm start of a new bullish cycle. On weekly basis BTC has dropped 3% for the week at the time of writing the report.
Avalanche, Terra, Polygon and Solana however gained more than 5% in the last week. The news from the crypto world though continued to lean towards optimism with Tokyo’s biggest finserve firm, SBI group, now allowing Japanese investors to purchase cryptocurrencies via its newly launched crypto-asset fund and Myanmar’s parallel government declaring the use of Tether as official currency. The US SEC has also delayed the decision on Bitcoin ETFs in the US to early February.
In agricultural products, soybean rallied to a three week high on signs of US tightening US vegetable oil supplies and fresh export demand.
Wheat and Corn also rose for the week supported by strong weekly export sales and dry conditions in the US Plains after powerful wind storms raked the region.
The traders are assessing the impact of Wednesday’s storms in the US plains on winter wheat production.
Author: Ateev Dang is a trader and trading coach by profession. He runs his own business called Glow trades Pty Ltd where he teaches anyone who is interested in starting on their trading journey on how to trade. He can be contacted on adang@glowtrades.com.au.
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