Risk On As Markets Downplay Omicron Threat

Benchmark global equities indices are enjoying a better tone to trading this week. Investor uncertainty over the Omicron variant appears to be abating somewhat on hopes that the strain will not prove to be as deadly as previous strains. Despite a higher level of infectiousness, the variant has so far not been seen to cause an uptick in hospitalisations or deaths. With this in mind, the perceived risk of lockdowns returning in the US and the UK, for example, has lessened. While this trend could still shift, for now at least, investors are displaying some relief with all four indices tracked here moving back into the green this week. Better data out of China has also added to the risk-on tone this week with Chinese imports seen rebounding firmly last month.

Looking ahead this week, the key focus will be on US CPI at the top of the week. Following the bumper reading seen last month and given the proximity of the December FOMC, there will be a great deal of focus placed on Friday’s data. A further strong reading will elevate expectations ahead of next week’s Fed meeting, increasing the chances of the Fed stepping up its tapering program, likely to weigh on equities near term, especially if the guidance is hawkish also. Meanwhile, should inflation be seen to have cooled a little over November, this might allow the Fed room to keep tapering at current levels, allowing equities to continue higher.

Technical Views

DAX

The reversal higher off the 15078.83 level has seen price breaking out above the 15473.83 level. With MACD and RSI turning higher, the focus is on a break of the 15743.01 level next, targeting a move up to 16015.97 thereafter.

S&P500

Having tested below the 4545.25 level, the S&P has since rebounded higher and is now fast approaching a retest of the broken bull channel along with structural resistance around the 692.75 level. With MACD and RSI both turning higher, the focus is on a continued push higher in the near term.

FTSE

The FTSE has seen the most dramatic shift in sentiment of the four with price rebounding sharply off the 6868.7 level to trade back up through the 7137 and 7241 levels. Price is now fast approaching the 7362.6 level, with MACD and RSI turning higher also, keeping the focus on further upside in the near term.

NIKKEI

The Nikkei is rotating higher within the large, contracting triangle pattern which has framed the last two quarters’ worth of action. The test of the 27422.9 level has seen price breaking back above the 28356.6 level. While above here, and with MACD and RSI turning higher, the focus is on a test of the 29464.9 level and triangle top next.