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Omicron Turns From Bad Santa To Good Santa



By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

A cocktail containing better US Q3 GDP data, along with positive omicron headlines further inoculated financial markets against a year-end sell-off overnight. Mostly, it was Scottish and Imperial College London’s studies that back up preliminary South African data, suggesting that omicron is far more contagious than delta, but much less likely to put you in hospital. Of course, with case numbers exploding across the world, the sheer volume of omicron cases means that for health systems, omicron could mathematically and statistically be a zero-sum game versus omicron.

Markets don’t concern themselves with these sorts of “slapping you in the face” details if the headlines agree with the narrative that they want to hear. Unsurprisingly in New York, therefore, equities powered higher along with oil, and the US Dollar staged a sharp retreat as defensive positioning was unwound, although the bond market was sharply unchanged. So, markets and investors will get their “Santa/Christmas rally” by the looks of it. On a personal level, it is the only question I have been asked all week. It has become so annoying that I have contemplated breaking wrapped Christmas presents and taking scissors to soft toys.

From here, we are probably going to need some more omicron headlines along the lines of hospitalisations and deaths soar with total cases to turn the markets from their perpetual, central bank QE-induced perpetual buy-the-dip in everything course. The data calendar in the US sees jobless claims, durable goods and personal spending and income released tonight, the last major dataset to be released globally for this year. It would take a serious negative divergence by the data to upset the applecart of bulls, and likely only temporarily.

Thereafter, we will be left to the tender mercies of omicron headlines until the new year, and even that potency now appears to be fading. Only Vladimir Putin deciding to holiday over the Ukrainian border changes that narrative. Think much lower equities, lower everything in Europe, $150 oil, a much higher Dollar and Swiss Franc with plunging treasury yields. But I don’t want to be the Grinch-ski who stole Christmas.

In Asia, the calendar today is dead with only Singapore Inflation for November to relieve the monotony. Higher than expected prints could put another tightening by the MAS back on the table and see local equity weakness. Otherwise, we are in a hurry-up-and-wait mode in Asia today.

Asian equities drift higher on sympathy trade.

Overnight, the buy-the-dip FOMO gnomes had another day in the sun on Wall Street, thanks to decent US GDP data and indications that omicron is less symptomatically aggressive. Record highs were in sight once again as the S&P 500 jumped 1.02%, the Nasdaq powered 1.18% higher, and the Dow Jones gained a healthy 0.74%. In Asia, futures on all three have maintained their gains, drifting around 0.10% higher today.

The overnight rally on Wall Street has dragged seemingly still reluctant markets in Asia higher today as well, with regional bourses still refusing to fully buy into the hype from the US. The Nikkei 225 is 0.10% higher, despite an upward revision to Japan’s 2022 GDP forecast by the government. South Korea’s Kospi is 0.35% higher.

In China, a lockdown of the city of Xian to combat a virus outbreak has had no noticeable impact on local equity markets, which are recording modest gains. The Shanghai Composite and CSI 300 have gained 0.20%. Hong Kong, meanwhile, has posted a somewhat healthier gain of 0.45%.

Singapore has shrugged of VTL restrictions to gain 0.25%, with Kuala Lumpur rising by 0.40%, and Taipei gaining 0.60%. Jakarta is 0.35% higher with Bangkok rising by 0.65% and Manila jumping 1.10% higher. Australian markets have also risen in sympathy, the ASX 200 and All Ordinaries gaining 0.35%.

That all set the scene for a modest rally in European markets this afternoon, although the UK’s CBI Monthly Growth Indicator, and UK Car Production released this morning, both disappointed and may cap sentiment in London this afternoon. It would take some huge downside misses from the US data dump this evening to unsettle what appears to be an inevitable Santa rally on Wall Street into the end of the week.

US Dollar falls hard on surging virus sentiment.

The US Dollar was in full retreat overnight, mostly due to reports that omicron presents fewer hospitalisation risks. That saw sentiment swing even more strongly back to the global recovery trade and saw the dollar index collapse by 0.37% to 96.12, easing still more in Asia to 96.03. I am adjusting my downside support level to 95.85 on the dollar index, where it has traced out a triple bottom. A daily close under 95.85 sets up a deeper US Dollar correction, potentially into January, assuming omicron remains a storm in a teacup in the minds of the investors globally.

EUR/USD rallied 0.40% to 1.1340 overnight, but still faces resistance above 1.1360. Only a move above 1.1400 suggests a medium-term low could be in place. GBP/USD shrugged on weaker Q3 GDP to leap 0.66% to 1.3350 after the US Prime Minster appeared to rule out more virus restrictions, despite cases hitting 100,000 per day yesterday. GBP/USD needs to recapture 1.3400 to signal a medium-term low. USD/JPY remains at 114.15 today, with no movement in US bond yields overnight meaning no movement in the currency pair.

The three risk-sentiment amigos, the CAD, AUD, and NZD all booked strong gains overnight between 0.65% for the CAD, and 0.85% for AUD. A rise above 0.7250 for AUD/USD and 0.6850 from NZD/USD will signal further rallies into the new year. USD/CAD is at 1.2850 this morning and needs to close below 1.2750 to signal the same.

Asian currencies despite a much weaker fixing once again from the PBOC for the Yuan versus the US Dollar. It highlights the challenges China has to weaken the Yuan, without incurring the ire of Washington DC, as their closed border means recycled Chinese offshore profits provide an underlying bid to the Yuan. Asian currencies rose on improving sentiment and a strong Yuan ignoring the PBOC signals, continues to provide support during Asian trading hours.

Another big rally for oil.

The omicron is not-as-bad-as-we-thought trade continued to push oil markets higher overnight, thanks to more studies seemingly confirming that thesis. A sharp drawdown in official US Crude Inventories, following the API drop the day before, further gave the fast-money gnomes an excuse to pile back into long positions.

Brent crude leapt 2.1% higher to $75.55 a barrel where it remains in Asia. WTI rallied by an impressive 2.45% to $73.00 a barrel, where it remains in Asia. Brent crude has carved through resistance at $74.45 which becomes initial support, with resistance at 76.90 a barrel, the 100-day moving average. (DMA) WTI is eroding resistance between $73.00 and $73.20 as we speak, which opens further gains to $74.10 initially, its 100-DMA. Support lies at $70.60 and then $70.00 a barrel.

The threat of OPEC+ action has receded dramatically now that Brent crude is back above $75.00 a barrel, with $80.00 a barrel being the sweet spot for the grouping, I believe. Oil’s direction is entirely reliant on omicron headlines, and as long as they stay more contagious but less virulent, oil’s rally is likely to continue, with intra-day ranges exacerbated by thin liquidity.

Gold rallies on weaker US Dollar.

Gold rallied overnight in a mechanical response to a much weaker US Dollar on currency markets. Gold finished 0.80% higher at $1803.60, with the range flattered by lower than average trading volumes. In Asia, gold has added another 0.10% to $1805.40 an ounce.

Gold’s attempts to stage a meaningful recovery remain unconvincing, with traders cutting long positions at the very first sign of trouble intra-day. Gold lacks the momentum, one way or another, to sustain a directional move up or down. That said, gold could extend its gains into the end of the weak if growth sentiment remains ascendant.

Gold has formed a rough double top around the $1815.00 region which will present a formidable barrier, ahead of $1840.00.  Support lies at $1790.00, followed by $1780.00 an ounce. $1790.00 to $1815.00 continues to be my call for the range for the week.

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Markets Today – Inflation, Jobless Claims, Boris Blunder, Oil, Gold, Bitcoin




By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

It’s been a rollercoaster start to the year and as we head into earnings season, it’s hard to say exactly where investors stand.

Blocking out the January noise is one thing but it’s made far more complicated by omicron, inflation, and the rapid evolution of monetary policy. Yesterday’s reaction to the inflation data was a case in point. The data mostly exceeded expectations, albeit marginally, while headline inflation was a near 40-year high of 7%. And yet the response was broadly positive.

I get that traders were perhaps fearing the worst and, as I’ve referenced before, it does feel like markets are at peak fear on US monetary policy which could make relief rallies more likely. But there is also underlying anxiety in the markets that could make for some volatile price action for the foreseeable future.

Perhaps earnings season will bring some welcome normality to the markets after a period of fear, relief, and speculation. The fourth quarter is expected to have been another strong quarter, although the emergence of omicron will likely have had an impact during the critical holiday period for many companies. Of course, as we’ve seen throughout the pandemic, that will likely have been to the benefit of others.

And while earnings season will provide a distraction, it is happening against an uncertain backdrop for interest rates and inflation which will keep investors on their toes. It does seem that investors are on the edge of what they will tolerate and it won’t take much to push them over the edge. Which will be fine if we are near the peak of inflation, as many expect.

The data today looks a mixed bag on the face of it, with jobless claims coming in a little higher than expected, which may be down to seasonal adjustments. The overall trend remains positive and continues to point to a tight labor market. The PPI data on the other hand will be welcomed, with the headline number slipping to 0.2% month on month. Perhaps a sign of supply-side pressures finally starting to abate which will come as a relief after inflation hit a near-40 year high last month.

Sterling solid as pressure mounts on Boris

It seems impossible to ignore the political soap opera currently taking place in the UK, with Prime Minister Boris Johnson once again in the public firing line after finally admitting to attending an office party in May 2020.

In other circumstances, uncertainty around the top job in the country could bring pressure in the markets but the pound is performing very well. Perhaps that’s a reflection of the controversy that forever surrounds Boris, and we’re all therefore numb to it, or a sign of the environment we’re in that the PM being a resignation risk is further down the list when compared with inflation, interest rates, omicron, energy prices etc.

Oil remains bullish near highs

Oil prices are easing again today after moving back towards seven-year highs in recent weeks. It was given an additional bump yesterday following the release of the EIA data which showed a larger draw than expected. But with crude already trading near its peak, it maybe didn’t carry the same momentum it otherwise would.

The fundamentals continue to look bullish for gold. Temporary disruptions in Kazakhstan and Libya are close to being resolved, with the latter taking a little longer to get fully back online. But OPEC being unable to hit output targets at a time when demand remains strong is ultimately keeping prices elevated and will continue to do so.

A big test for gold

Gold is off a little today but the price remains elevated with key resistance in sight. The yellow metal has remained well supported in recent weeks even as yields around the world continue to rise in anticipation of aggressive tightening from central banks.

It could be argued that the bullish case for gold is its reputation as an inflation hedge, especially given central banks’ recent record for recognizing how severe the situation is. But with inflation likely nearing its peak, that may not last. That said, fear around Fed tightening may also be peaking which could support gold in the short-term and a break through $1,833 could signal further upside to come.

Can bitcoin break key resistance?

Bitcoin is enjoying some relief along with other risk assets and has recaptured $44,000, only a few days after briefly dipping below $40,000. That swift 10% rebound is nothing by bitcoin standards and if it can break $45,500, we could see another sharp move higher as belief starts to grow that the worst of the rout is behind it. It looks like a fragile rebound at the moment but a break of that resistance could change that.

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Crude Oil

Brent Crude Oil Trading at $84.53 a Barrel



Crude Oil - Investors King

The increase in Omicron variant cases has cast doubt on demand for crude oil in the near-term and trimmed gains recorded earlier in the week on Thursday during the Asian trading session.

The brent crude oil, against which Nigerian oil is priced, pulled back from $85.16 per barrel on Wednesday to $84.53 per barrel at 9:50 am Nigerian time on Thursday.

The uncertainty surrounding the highly contagious Omicron variant and its impact on fuel demand has shown by the U.S Energy Information Administration on Wednesday dragged on the global crude oil outlook.

The data released on Wednesday revealed that gasoline stockpiles rose by 8 million barrels last week, way higher than the 2.4 million barrel increase projected by experts. Suggesting that demand for the commodity is gradually waning in response to omicron.

“Gasoline demand was weaker-than-expected and still below pre-pandemic levels, and if this becomes a trend, oil won’t be able to continue to push higher,” OANDA analyst Edward Moya stated.

However, in a note to Investors King, Craig Erlam, a senior market analyst, UK & EMEA, OANDA, expected the impact of omicron to be short-lived. Libya’s inability to ramp up production after outage and OPEC plus continuous failure to meet production target are expected to support crude oil in the main term even with Kazakhstan expected to get back to pre-disruption levels in a few days.

“With omicron seen being less of a drag on growth and demand than feared. Combine this with short supply and there may be some room to run in the rally as restrictions are removed. Of course, Covid brings unpredictability and zero-covid policies of China and some others bring plenty of downside risk for prices,” he said.

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Soybean Oil Prices to Rise by 4% in 2022 Over Increase in Demand for Biofuels



Soybean Oil

In 2022, global soybean oil prices, driven by an increase in the demand for biofuels, have been projected to rise by about 4 percent, to $1,425 per tonne; a market report from IndexBox reveals.

According to the IndexBox report, the growing demand for biofuels, especially in Asia, will increase the prices of soybean oil globally.

The platform put it that in 2021, the average annual soybean oil price rose by 65 percent year-on-year to $1,385 per tonne, from $838 per tonne. Strong demand and high freight rates in China, which is the world’s second-largest importer of soybean oil, resulted in the most rapid price growth of the commodity in the third quarter (Q3) of the same year. Weather-related disruptions to production in South America also caused soybean oil prices to rise fast.

In 2020, IndexBox estimates that soybean oil purchases in the foreign markets rose by 7.5% to 13 million tonnes, increasing for the second year in a row after three years of decline. In value terms, soybean oil imports have grown notably to $10.3 billion.

India was the highest importing country with a purchase volume of around 3.7 million tonnes, accounting for 28% of global supplies. China ranked second with a purchase volume of 963 thousand tonnes.  Algeria (670 thousand tonnes) and Bangladesh (666 thousand tonnes) were ranked as the third and fourth major importing country.

The four countries altogether accounted for about 17% of total soybean oil imports. Coming behind as the fifth-highest importer is Morocco (547 thousand tonnes), followed by Mauritania (537 thousand tonnes), Peru (521 thousand tonnes), South Korea (390 thousand tonnes), Colombia (378 thousand tonnes), Venezuela (373 thousand tonnes), Egypt (243 thousand tonnes), Poland (229 thousand tonnes) and Nepal (215 thousand tonnes).

India in value terms ($3 billion) being the largest market for soybean oil imports in the world, accounted for 29 percent of global imports. The second position in the ranking was taken by China ($725 million) with a 7 percent share. North African country, Algeria came third with a share of 4.6 percent of the total value.

Top Soybean oil exporters

In 2020, Argentina was the major exporter of soybean oil (5.3 million tonnes), constituting 42% of total exports. The United States (1238 thousand tonnes), Brazil (1110 thousand tonnes), Paraguay (631 thousand tonnes), the Netherlands (615 thousand tonnes) and Russia (611 thousand tonnes) follow, altogether accounting for 33% of global supplies. Meanwhile, Spain (387 thousand tonnes), Bolivia (377 thousand tonnes), Ukraine (302 thousand tonnes), Turkey (208 thousand tonnes) and Germany (192 thousand tonnes) had relatively small shares in the total volume.

In value terms, Argentina remains the largest supplier of soybean oil in the world ($ 3.7 billion), which accounts for 39% of global exports. The United States ($ 979 million), with a share of 10% of the total supply is ranked second. Both countries are followed by Brazil with an 8% share.

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