Market Watch 28.11.2021

New COVID-19 Variant Found in South Africa. The B.1.1.529 strain found in South Africa has been given the name “Omicron” by the World Health Organisation and is a “variant of concern”. Scientists have discovered it carries a large number of mutations in its spike protein, which is the target of vaccines as it’s largely responsible for the virus’ entry into the body. Daily cases have tripled since Tuesday in South Africa, reaching 2,828 cases by Friday and it has already been found in travellers in Hong Kong and Israel. South Africa’s Omicron R value is at a very alarming 1.93, much higher than the countries 1.47 for COVID-19 as a whole.


The UK has responded by halting flights from six countries in Africa as of Friday. Francois Balloux, director of the UCL Genetics Institute in London said, “If B.1.1.529 were more transmissible than Delta, this strategy is most unlikely to succeed in the long term but might allow gaining some time to further increase vaccination rates, including third doses, and deploy promising drugs currently in the pipeline.” It is even more worrying that Francois believes the new variant is “most unlikely to fully escape immunisation provided by vaccination and prior infection”. However, South African scientists have done a great job of discovering Omicron much quicker than the world knew about Delta.


Markets reacted very negatively, oil prices lost all gains from the SPR announcement with both WTI and Brent falling over 11%. Global equities also took a tumble, the S&P 500 fell 2.1%, the Nasdaq Composite fell 2.2% and the FTSE 100 dropped 3.6%.



Jerome Powell Appointed for a Second Term. On Tuesday, President Joe Biden selected Jerome Powell to serve another 4 years as chair of the Federal Reserve. Even with Powell’s experience, this should be a very daunting task as consumer prices are up 6.2% so far this year and the Fed’s preferred inflation metric is up 4.1%. This creates the main challenge of raising rates to combat the inflation without crashing markets.


The news resulted in a selloff of stocks and treasuries, however, it is positive in the long term for risk assets. The Nasdaq Composite Index closed 0.5% lower and the dollar reached the strongest point since September 2020. The 2-year US treasury bond yield hit 0.64%, its highest point since March 2020 and the 10-year US Treasury bond yield rose by 0.06% to 1.68%.

Chief investment strategist at Nuveen, Brian Nick said despite the selloff, there is “no sense of a panic or that markets were hoping for a different outcome”. Marko Kolanovic, a strategist at JPMorgan Chase said, “Powell’s reappointment reduces uncertainty, and hence should be a positive for risk assets. Historically, markets try to test new Fed Chairs, so we believe this outcome will be avoided. Additionally, Powell’s experience from 2H18, where policy tightening contributed to the strong market selloff into year-end, will likely result in a cautious approach to lift-off next year.”




Oil Rises Following SPR Release Announcement. President Joe Biden announced on Tuesday that the country’s Strategic Petroleum Reserve will release 50mn barrels of crude oil. The largest amount ever released from its 600mn barrel underground reserve in the hopes of reducing petrol prices. Biden made the decision after OPEC+ rejected his request to increase crude oil production three weeks ago. China, the UK, Japan, South Korea and India also agreed to release oil. India will release 5mn barrels, Britain will release 1.5mn, China will release at least 7.33mn barrels and the other volumes are currently unknown.


Oil futures reacted positively to the news as the market expected a larger amount of oil released from the SPR. WTI climbed 3.1% to $78.52 and Brent rose by 3.3% to $82.31. Senior director of the BCG Center for Energy Impact, Jamie Webster said Biden threatening to release oil from the SPR seemed to be quite a good idea to lower prices, however, “it’s not really having an effect that anybody was hoping for.” Furthermore, Energy Aspects’ director of research, Amrita Sen said the release would have little long-term impact as the oil is mainly “sour” (high-sulphur crude) when the market is tighter in “sweet” and the release could take as long as six months.



Economic Calendar 29th November -3rd December


MONDAY

  • Data: US Pending Home Sales, German Annual Inflation Rate, German CPI, New Zealand Busine Confidence

  • Events: Fed Chair Powell Testifies & Speech, BCB Focus Market Readout, US Treasury Secretary Janet Yellen Speech


TUESDAY

  • Data: CNY Manufacturing PMI (Oct), Eurozone CPI (Nov), CAD GDP (Sep), US CB Consumer Confidence (Nov), France CPI, German Unemployment Rate

  • Events: Fed Chair Powell Testifies


WEDNESDAY

  • Data: AUD GDP (Q3), UK Manufacturing PMI (Nov), US ADP Nonfarm Employment change (Nov) & ISM Manufacturing PMI (Nov), German Manufacturing PMI

  • Events: Fed Chair Powell Testifies


THURSDAY

  • Data: Australian Trade Balance (Oct) and Retail Sales, US Initial Jobless Claims

  • Events: OPEC Meeting


FRIDAY

  • Data: UK Composite & Services PMI (Nov), US Nonfarm Payrolls & Unemployment Rate (Nov), Canada Employment Change

  • Events:


Main Events


  • U.S Nonfarm Payrolls

On December 3rd, the next Nonfarm payrolls data will be released. This heavily anticipated event will be the spotlight of the week, as its reading will have a large implication, influencing the US securities. Nonfarm payrolls measure the change in the US labour market, excluding people that reside in the farming industry. For these reasons, it is widely used in gauging the overall market confidence and economic expansion. One of the key reasons for the anticipation of this release is that the Federal Reserve has a mandate that strictly relates to unemployment. High levels of employment can be a sign of economic strengthening, whereas figures of weaker than expected employment has the opposite effect. The current market expectation figure is 563K with a previous reading of 531K.


  • UK Composite & Services PMI

On Friday, the UK will release data surrounding the Composite PMI Index which relates to the purchasing level in the UK. A reading above the 50 mark shows an economic expansion for the UK’s economy, whereas a figure below this level depicts a contraction. The current market forecast reading is 57.6 with a previous release of 57.7. Moreover, the UK Services purchasing managers index is a similar measure that relies on survey results from service activities of different UK firms. Similarly, to the composite PMI, a result above 50 implies expansion. The current forecast is 58.6, with a previous figure of 58.6. These data display a continuation of the UK economic expansion, but investor will monitor the new coronavirus string developments when pricing in these readings.



Thank you to Cameron Barker, George Fol and Mihai Golumbeanu for your in-depth analysis!

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