Weekly market update : Turn to the south

Friday December  3

Weekly market update

The financial markets have had a very turbulent week, moving in a volatile manner according to the announcements on inflation and on the evolution of the health situation, following the discovery last week of the new Omicron variant. Volatility therefore remains high, with fears of new restrictive measures, a marked impact on the global economy and expectations of a tightening of central banks' monetary policies. This nervous phase should continue over the next few sessions.

Indexes Over the past week, in Asia, the Hang Seng lost 1.6%, the Nikkei 2.5% while the Shanghai composite gained 1.2%. In Europe, the ranges were large but the major indices ended in dispersed order. The French CAC40 gained 0.38% (after -5.2%), the Footsie 1.18% but the German Dax lost 0.57%. In the peripheral countries of the euro zone, Italy rose by 0.33% while Portugal lost 0.12% and Spain lost 1.92%. Across the Atlantic, performance remained negative. The Dow Jones fell by 1.32% over the last five days, the S&P 500 by 1.62% and the Nasdaq 100 by 2.66%. Source: MarketScreener

Commodities Despite a positive weekend, oil prices recorded a new weekly sequence of decline, weighed down by the appearance of the Omicron variant almost everywhere in the world. OPEC+ confirmed its intention to increase production by 400,000 barrels per day from January 2022, a decision appreciated by Washington, which, it should be remembered, has taken action to curb the rise in prices. The European reference, Brent, is trading at around 72.5 USD while WTI is trading at 69 USD per barrel. The increase in volatility in the equity markets has not really benefited the barbarian relic, which is slowly but surely slipping below the USD 1,800 mark. As such, you will have to pay just under USD 1770 to buy an ounce of gold, compared to USD 22.3 for silver. In base metals, prices stabilized as traders opted for a wait-and-see attitude, certainly torn by conflicting statements about the effects of the Omicron variant on the economic recovery. Copper gave up some ground at USD 9500, while nickel and aluminum stalled at USD 20185 and USD 2655 respectively.

Equity markets - Vifor Pharma (+15%): the Swiss company gained 21% in Thursday's session alone, after revelations in the Australian press of a buying interest from CSL Limited, based on a valuation of CHF 6.5 billion. Vifor denied this and said it was in regular discussions with other players. - Deliveroo (-20%): the EU intends to reclassify people working for food delivery apps as employees, according to Bloomberg reports. The agency understands that the plan unveiled on Dec. 8 will reclassify about 4.1 million workers in the virtual economy as employees. - Moderna and BioNtech (+10%): the two laboratories that produce the world's most widely used vaccines against the virus have obviously benefited from the return of fears linked to the pandemic. No need to explain why. - Pinduoduo and Bilibili (-27%): the US-listed Chinese company reported disappointing quarterly results. In addition, the announcement of the delisting of its compatriot Didi from the U.S. market, under pressure from the Chinese authorities, sets a dangerous precedent for these stocks. - Faurecia (-8%): the French automotive supplier warned on Monday that it will not be able to achieve its targets, due to a combination of internal and external factors, including component shortages. Source: MarketScreener

Macroeconomics Once again, the US central bank was at the center of the game. Its chairman, Jerome Powell, threw a spanner in the works on Monday by changing the institution's rhetoric. Inflation is a greater concern for the Fed, which plans to respond by reducing its asset purchases faster than expected. Objectively, many investors were expecting such an adjustment, given the persistence of price increases. This announcement came in the midst of a media-sanitary melodrama about the consequences of the latest virulent variant of covid-19, dubbed Omicron. In the end, the reactions were a bit odd. The dollar did not move much, whereas one could expect a strengthening in a context of rising risk aversion and increased volatility. It is even trading slightly lower than last week at USD 1.2934 per EUR. On the other hand, the Swiss franc logically regained ground against the single currency at CHF 1.03892 per EUR. The Turkish lira is again in a slump on the week, at 13.7591 TRY per USD. Forex traders are still punishing President Erdogan's interventionism, which dictates his economic strategy to the country's central bank, whose independence exists only on paper. On the bond market, 10-year US debt is paying 1.46%, down sharply from the previous week, due to the return of the pandemic to the forefront. The Bund, for its part, has fallen back to -0.36% and the French OAT briefly tasted negative territory again. On the cryptocurrency side, the Securities and Exchange Commission (SEC) is turning down applications for physical Bitcoin ETFs, while index funds backed by futures contracts were authorized by the financial regulator several weeks ago. Two members of the House of Representatives in the United States have raised this inconsistency and are asking SEC Chairman Gary Gensler to reconsider the filings. In the meantime, the total market capitalization of the market is hovering around $2.5 trillion with bitcoin hovering between $53,000 and $60,000 for the past two weeks. The week closed with hard to interpret data on the US labor market in November. On the one hand, the unemployment rate continued to fall, but on the other hand, job creation was much lower than expected. Will this change the Fed's policy, especially if the coronavirus is still at work? That's the question investors will be asking until the next major statistic comes out. As such, next week's schedule consists of the German ZEW financial confidence indicator (Tuesday), the JOLTS job openings survey in the US (Wednesday) and, most importantly, US inflation for November (Friday). Source: MarketScreener

Turn to the south This week has been marked by an upsurge in volatility (the VIX index has risen above 30) in the continuity of uncertainties related to the Omicron variant and the effectiveness - still hoped but not proven - of current vaccines. For his part, Jerome Powell expressed doubts about the idea of temporary inflation and stressed that "the risk of persistent inflation has grown". This is a turnaround for the market which is under pressure on two fronts (health and monetary). Proven inflation would potentially accelerate the end of the asset purchase program. If markets do not like uncertainty, this is even more true when they are no longer supported by central banks.