COVID Uncertainty Dominates
The uncertainty around the recently announced Omicron COVID-variant has been well reflected in the price action we’ve seen across asset classes this week. While most leading indices remain broadly in the red for now the initial decline has yet to be advanced and, instead, we are seeing price moving in choppy consolidation mode as traders await further details on the new variant. Interestingly gold prices remain under pressure here suggesting that the asset is not the preferred safe haven of the moment, likely given US tightening expectations.
Waiting On Further Details
The initial global reaction to Omicron has tempered somewhat in line with advice from scientists to “wait and see” with regard to how serious the new strain proves to be. So far, the only encouraging sign is that the new strain appears to lead to milder symptoms (less hospitalisations and deaths) which might mean that countries are able to avoid going into lockdown again (which was the key fear initially). However, should the new strain prove to be more deadly than it initially seems, this could quickly lead to fresh downside in risk sentiment.
US Jobs In Focus
Away from COVID, the focus today will be on the US jobs reports for November. The market is broadly expecting an improvement on the prior month. With most indicators having ticked higher recently, reflecting a pickup in activity, expectations are well primed for the release. However, it would likely take a strong beat here to significantly impact the Dollar higher against the COVID backdrop. If we do see USD trade higher today, however, this is likely to weigh on gold prices further in the near term.
NFP Expected To Improve
In terms of numbers then, the market is looking for the headline NFP to come in at 553k from 531k prior. Additionally, the unemployment rate is forecast to fall back to 4.5% from 4.6% prior while average hourly earnings are set to remain unchanged at 0.4%. Given the Fed’s focus on employment (and with inflation surging), a strong set of numbers today will sharpen the focus on December tightening. Alternatively, any disappointment today will likely add further uncertainty given the resurgence in COVID fears, likely sending USD lower near term.
For now, the Dollar index is holding in a tight band between the 95.61 and 96.46 levels. While support holds, the focus is on a continuation higher in the near term, resuming the bull move we saw over November. A break below that level, however, will turn the focus to 94.54 next.