A bumpy ride to start the New Year

Publish Date 01 Jan 0001
Market Analysis / 4 Min Read
Milan Cutkovic / Last Update 04 Jan 2022

Key Events This Week

Tuesday

  • Germany - Unemployment Change
  • United Kingdom - Manufacturing PMI
  • United States - ISM Manufacturing PMI

Wednesday

  • United States - ADP Nonfarm Employment Change
  • United States - ISM Non-Manufacturing PMI
  • United States - FOMC Meeting Minutes

Thursday

  • China - Caixin Services PMI
  • United Kingdom - Services PMI
  • United States - Initial Jobless Claims

Friday

  • United States - NFP
  • United States - Unemployment Rate
  • Euro Zone - CPI
  • Euro Zone - Retail Sales
  • Canada - Unemployment Rate
  • Canada - Ivey PMI

 

Bumpy ride ahead for the stock market

With equity markets hitting fresh record highs, it’s almost difficult to believe that we’re still in the midst of a global pandemic with a record number of new COVID-19 cases.

However, there is some good news with more studies showing that the Omicron hospitalization risk is lower than for the Delta variant; more people are getting infected, but the symptoms appear to be less severe. Investors have been particularly worried about the prospect of many countries returning to a full lockdown, but those have been reinstated only in few countries.

Does this mean the stock market will continue to march higher? Not necessarily. So far, the surge in new COVID-19 cases has been manageable, but there are concerns that the large number of people testing positive and having to go into self-isolation will only add to the labor shortage seen in many developed economies.

Inflation remains in the spotlight too. Inflation is likely to stay at persistently high levels across developed markets, which will increase the pressure on central banks to act.

Let's have a look at some of the major indices.

The GER30 has recovered nicely from the early December sell-off but stalled just ahead of the psychological 16,000 resistance level. A breakout above this level would pave the way for a re-test of the record high from November 2021. To the downside, the key area to watch is 15,376-15,424. GER30 bulls will have to defend this support zone, or we are likely to see an extension of the correction towards 14,912 points.

Meanwhile, the USTECH index lost some of its momentum recently. While the record high is still within reach, the tech sector is particularly sensitive to rising interest rates, which means that the rollercoaster ride is set to continue in 2022. The index is currently consolidating within a channel, and bears will be anticipating a breakout below the lower trendline to signal the beginning of a deeper correction.

OPEC likely to stick to existing plans

OPEC and its allies will meet this week to decide whether they will keep their existing plan - a 400k barrel per day output hike for next month - intact or make changes. It’s likely that OPEC+ will stick to its existing plan as Omicron fears are easing and Oil prices have started to recover.

This would give Oil an additional boost and help its recovery from the November price crash. USOIL could need some fresh momentum as it is currently struggling to overcome the resistance zone between $77 and $77.20. The 61.8% Fibonacci level of the November-December decline has also proven to be a tough obstacle. To the downside, traders will be closely watching support at $73.50 and $73.15, which needs to hold for bulls to keep the upper hand.

 

 

NFP day

Friday will bring us the latest U.S. employment data. The Federal Reserve made it clear that they’re less concerned about the labor market – which has seen a strong recovery – than they are about inflation. That doesn´t make Friday´s data release any less important though. Following two disappointing NFP figures, the market is still fairly optimistic and anticipating a 400k print. The unemployment rate is expected to decline from 4.2% to 4.1%.

A strong NFP print could give the U.S. Dollar, which has been struggling towards the end of the year, a boost. EUR/USD could come under renewed pressure, and the recent price action is hinting at a bull trap rather than the beginning of a sustainable recovery.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.


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