US stockmarkets fell last week as a hawkish Fed pivot, high inflation, and the latest COVID-19 variant, Omicron, created an unstable mix of growth and policy-tightening concerns.
The same concerns weighed on the ASX200 as it closed lower for a fourth straight week, leaving investors wondering if December 2021 will deliver a strong rally as is often seen at this time of the year.
Here are the top five things to watch in markets this week:
1. Omicron
The market will continue to look for clues about Omicron’s transmission rates, the efficacy rate of existing vaccines, and the virus’s severity after early reports suggest Omicron only causes mild illness.
If it turns out Omicron is more transmissible but results in milder cases, it would be a positive development.
2. Last RBA meeting before February
In its last meeting of the year, the Reserve Bank will keep interest rates on hold at 0.1 per cent and reiterate its dovish guidance on interest rates.
The accompanying statement is likely to acknowledge the stronger-than-expected Q3 GDP print and may also note the potential disruption to the outlook from the Omicron variant.
3. Has crude oil bottomed yet?
Crude oil closed lower for a sixth straight week as the oil market continues to grapple with the uncertainty of Omicron, a faster rate of Fed tapering, and increased OPEC+ supply.
A rebound from recent lows may be likely after nuclear talks with Iran ended without any signs of progress.
4. What next for Bitcoin after its weekend ‘flash crash’?
The mix of the Omicron variant, the possibility of a faster rate of Fed tapering, and poor liquidity unnerved crypto markets over the weekend as Bitcoin plunged 20 per cent to a low near $42,000 before staging a partial recovery.
While the weekend’s “flash crash” is sure to leave positioning much cleaner, it may take time before confidence returns to the digital asset space.
5. US inflation data for November
US inflation data for November is released this Friday and will likely print red hot!
Headline inflation is expected to rise from 6.2 per cent to 6.7 per cent, and core inflation is expected to rise from 4.6 per cent to 4.9 per cent.
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