Week Ahead: Omicron, OPEC+, and NFP to start the new year

Will the virus inject a new bout of fear into the markets, or will traders throw caution to the wind and continue with the risk-on theme?

Trader 3

Happy New Year!  As we change the calendars from 2021 to 2022, many of the same themes will continue, including rising inflation and the coronavirus.  Although we do have a few inflation data points this week (several CPI releases and US Average hourly earnings), the focus is on the virus. Omicron is on the tip of everyone’s tongues as the number of new daily cases surge to record highs in many countries.  How will this affect markets moving forward?  This is a question that OPEC will have to answer when members meet on Tuesday to decide if they should increase oil supply.  In addition, the beginning of a new month means payroll data for the US and Canada on Friday.  Traders will be watching to see if Omicron influenced the data.

Central Banks: Liftoff in Focus?

Omicron

Record numbers of new daily cases of the coronavirus continue to pour in from around the globe, primarily due to the Omicron variant.  The US shattered the record with 484,377 new cases on Wednesday last week. The UK and many European countries are also reporting record numbers of new daily cases. What do the markets think? Well, the S&P 500 made all time new highs, again, last week.  Are traders realizing that this is something people are just going to have to live with?  Or is the buying due to “window dressing” so that funds can make their returns look better?  In addition, higher inflation doesn’t seem to be going away anytime soon, and the increase in new cases could increase inflation.  If more people are sick, even slightly sick, they will need to stay home from work for at least a few days. Will factory workers, longshoreman, truck drivers, and be able to get supplies and products where they need to be in a timely fashion?  The Omicron variant may create higher inflation if it is not contained in the next few months.

Forecasting 2022 Inflation: Transitory no more?

OPEC+

OPEC+ meets on Tuesday this week.  The committee must decide if they will continue to increase the supply of oil by 400,000 bpd or pause due to lack of demand due to the Omicron variant.  Expectations are that OPEC+ will increase output.  Chances are growing that demand will increase later in the year as coronavirus fears diminish.  In addition, counties that released oil from their reserves in December to counter higher prices will soon need to begin stockpiling again.  These countries include the US, UK, China, and South Korea, among others.  (Prices are creeping higher again into the meeting.)  Therefore, the demand is expected to be there for the increase in output.  Watch for OPEC to stick to the script. 

The global energy crisis – when will it abate and what does it mean for oil?

Economic data

Although there are no major central bank meetings to start off the new year, the FOMC will release Minutes from its December meeting.  Will this change the view traders have of a hawkish Federal Reserve? As mentioned, there is some inflation data this week, which includes CPI from Turkey, Germany, and the EU.  In addition, there will be manufacturing and jobs data out this week, which have inflation components.  These include global Manufacturing and Service PMIs and US Average Hourly Earnings.  Watch jobs data as well, as reports will be released from Germany, Canada, and the US.  Other important economic data is as follows:

Monday

  • European and US Manufacturing PMIs Final (DEC)
  • Turkey: Inflation Rate (DEC)
  • US: Construction Spending (NOV)

Tuesday

  • OPEC meeting
  • “Rest of World” Manufacturing PMIs (DEC)
  • China: Caixin Manufacturing PMI (DEC)
  • Germany: Retail Sales (NOV)
  • Germany: Unemployment Change (DEC)
  • UK: BOE Consumer Credit (NOV)
  • UK: Mortgage Lending (NOV)
  • Canada: PPI (NOV)
  • US: ISM Manufacturing PMI (DEC)

Wednesday

  • European and US Services PMIs Final (DEC)
  • Australia: RBA Chart Pack
  • Japan: Consumer Confidence (DEC)
  • US: ADP Employment Change (DEC)
  • Canada: New Housing Price Index (NOV)
  • Canada: Building Permits (NOV)
  • US: FOMC Minutes
  • Crude Inventories

Thursday

  • “Rest of World” Services PMI Final (DEC)
  • China: Caixin Services PMI (DEC)
  • Germany: Factory Orders (NOV)
  • EU: Construction PMI (DEC)
  • EU: PPI (NOV)
  • Germany: CPI Prel (DEC)
  • Canada: Trade Balance (NOV)
  • US: Trade Balance (NOV)
  • US: ISM Non-Manufacturing PMI (DEC)
  • US: Factory Orders (NOV)

Friday

  • Japan: Household Spending (NOV)
  • Japan: Tokyo CPI (DEC)
  • Germany: Trade Balance (NOV)
  • UK: Halifax House Price Index (Dec)
  • UK: Construction PMI (DEC)
  • EU: CPI Flash (DEC)
  • EU: Retail Sales (NOV)
  • EU: Economic Sentiment (DDEC)
  • Mexico: CPI (DEC)
  • Canada: Employment Change (DEC)
  • US: Non-Farm Payrolls (DEC)
  • Canada: Ivey PMI s.a. (DEC)

Chart of the Week: Daily S&P 500

20211230 ES daily ci

Source: Tradingview, Stone X

No matter how many times the S&P 500 has tried to move lower last year, buyers came in a bought the dip.  The large cap benchmark index has been moving higher the entire year, continuing the trend which began in March 2020. Traders have been waiting for price to break lower out of the ascending wedge, yet it hasn’t! Will this trend change in 2020, especially if inflation fears continue to creep into the markets?  The S&P 500 set new highs, again, last week.  (The futures contract is shown, as it captures overnight trading data).  Resistance is at the 127.2% Fibonacci extension from the highs of December 17th to the lows of December 20th, near 4804. Above there, resistance is at the top, upward sloping trendline of the wedge near 4860 and then the 161.8% Fibonacci extension of the previously mentioned timeframe near 4881.  However, notice that the RSI is diverging with price, an indication the index may be ready for a pullback.  Support is back at prior highs near 4743.25, the bottom upward sloping trendline of the wedge near 4575 and the lows from December 20th at 4520.25.

Omicron will be on everyone’s minds this week as traders digest the rapid spreading, yet mild, variant.  Will the virus inject a new bout of fear into the markets, or will traders throw caution to the wind and continue with the risk-on theme?  In addition, OPEC+ meets this week as the price of WTI crude oil approaches $77.  Will it increase output again?

Have a great new year’s weekend and please remember to always wash your hands!

Learn more about index trading opportunities.



Build your confidence risk free

More from week ahead

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.