We’ve had a volatile week for US stock markets buffeted by concerns over the new Omicron COVID-19 variant, high inflation, and a hawkish pivot by Federal Reserve Chairman Jerome Powell.
The same headwinds that led Wall Street lower have weighed on the ASX200 as it traded to a nine-week low below 7200.
Here is a review of the top five things that happened in markets this week:
The arrival of the Omicron variant has created turmoil.
Information on the COVID variant is sparse and, in some cases, contradictory.
The confusion echoes the aftermath of when Oxford, Pfizer, and the World Heath Organisation contradicted a Financial Times report in which the Moderna CEO said existing vaccines would “struggle” with the new variant.
The limited available data does not appear overly alarming at this stage.
However, some travel restrictions have returned, with cases now recorded in 24 countries, including the US and Australia.
1. Fed chair’s hawkish pivot
In a Congressional Testimony, US Federal Reserve chairman Powell suggested the potential for an accelerated tapering of the Fed’s bond-buying program, and added it was no longer appropriate to include the word “transitory” when talking about inflation.
Powell’s hawkish pivot, while the Omicron variant is creating uncertainty, is a reminder that timing is everything in markets.
3. Crude oil continued to fall
After a 12.5 per cent plunge on Black Friday, crude oil extended its declines this week to cap a 20 per cent loss for November.
Uncertainty around what Omicron means for oil demand for air and auto travel, coupled with a faster Federal Reserve tapering, are the reasons for this week’s falls.
4. AUD vs USD
Despite a much better than expected Australian third-quarter GDP (albeit a still negative print), the Australian dollar is straining under the pressure of uncertainty around Omicron and the stronger US dollar.
The AUD exchange rate with the USD made 16 months of lows below .7100 c.
5. Soaring German inflation
The German inflation rate jumped to 5.2 per cent year-on-year, the highest rate since 1992 and above market expectations for a 5 per cent print.
The high inflation number helped the euro exchange rate with the US dollar regain some lost altitude after falling from above 1.1500 in November to below 1.1200.
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