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Opening Bell: Markets Take A Breath Ahead Of Fed; Dollar, Oil Slide

Published 12/15/2021, 09:16 AM
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  • Traders expect the Fed to hasten stimulus reduction
  • Dollar slips
  • Bitcoin's recovery continues
  • Key Events

    Global markets wavered on Wednesday ahead of the keenly awaited US Federal Reserve monetary policy decision and statement during the New York session. Traders expect the central bank will outline plans to hasten the reduction of its emergency bond buying program. US futures on the S&P 500, Dow Jones, NASDAQ and Russell 2000 were mixed, while European markets traded slightly higher.

    The price of oil remains under pressure as Omicron concerns weigh on sentiment.

    Global Financial Affairs

    Futures on the Dow and S&P traded marginally higher while those on the Russell 2000 and NASDAQ 100 lagged. This juxtaposition reveals a reversal in the relationship between contracts on tech mega-caps, which had outperformed during the stay-at-home environment due to coronavirus restrictions, and domestic firms, which thrive in an open economy. It is noteworthy that cyclical stocks outperformed tech this week.

    In a rare occurence, Europe is showing a reverse picture this morning. Tech shares are leading a rally after the sector dragged the STOXX 600 Index to its fifth straight daily loss on Monday, its longest decline since the Mar. 12, 2020 bottom, when the gauge dropped for six consecutive days.

    Shares in Spanish clothing retailer and Zara-owner Inditex (MC:ITX) plunged as much as 4.6% after posting a 2.5 billion euro net profit for the first nine months of its fiscal year, still lower than the pre-COVID 2.9 billion euros in 2019.

    ITX Daily

    The stock pared losses to 3%, having found support by the bottom of a bearish pennant. After falling below its 200 DMA, the bearish pattern developed, demarcating a double top.

    Also, Hennes & Mauritz (ST:HMb), the world's second-largest fashion retailer, dropped 2.5%, despite reporting an 8% rise in net sales from September through November. Investors were skittish about the Swedish retailer's stock after the company temporarily closed about 115 stores amid COVID restrictions.

    HMb Daily Chart

    H&M's stock has been moving sideways since Oct. 6, opening the possibility of a bottom after having traded within a falling channel since the Mar. 16 peak, the stock's highest since February 2017.

    It seems that traders are becoming nervous about the outlook for corporates that depend on an open economy, as the Omicron variant of COVID-19 continues to spread.

    Conversely, shares in Italian insurer Generali (MI:GASI) ascended 1.4% after the firm announced dividends and buybacks of up to 6.1 billion euros.

    On Tuesday, the S&P 500 Index sold off for the second day, and financials were the only bright spot among the 11 major sectors. Technology giants led markets lower during the Wall Street session after a jump in producer prices soured sentiment. Today the FOMC will wrap up its final meeting of the year—the PPI data increased the odds of tightening policy.

    Treasury yields on the 10-year note slipped back from yesterday's slight rise.

    The dollar dipped.

    Dollar Index Daily

    The slide in the greenback followed a breakout from a potential bullish pennant. Savvy technicians understand the significance of this pattern within the context: the USD last week ended a 6-week winning streak by slipping two pips. This week the currency is at risk again, making the sharpest move in five weeks, suggesting it is gearing up for another explosive rally.

    The pound sterling rose amid political drama in the UK. Prime Minister Boris Johnson suffered a blow when almost 100 members of his party voted against his new COVID restrictions—the measures were eventually approved in the UK parliament as members of the opposition voted in favor.

    On the economic front, UK consumer prices leapt 5.1% yearly, a new 10-year high, double the Bank of England's target level. Nevertheless, market consensus is that the UK central bank will keep rates on hold at its meeting on Thursday.

    Gold declined for the second day.

    Bitcoin edged higher for the second day.

    Oil slipped for the third straight day on concerns for future demand after China reported weaker than expected retail sales figures, raising worries as coronavirus outbreaks there have led to restrictions being reintroduced in some areas. In addition, the IEA announced the global oil market has returned to a surplus.

    Oil Daily

    WTI is falling after completing a bearish, rising flag.

    Up Ahead

    Market Moves

    Stocks

    • The STOXX 600 rose 0.5%
    • Futures on the S&P 500 were little changed
    • Futures on the NASDAQ 100 were little changed
    • Futures on the Dow Jones Industrial Average were little changed
    • The MSCI Asia Pacific Index fell 0.6%
    • The MSCI Emerging Markets Index fell 0.7%

    Currencies

    • The Dollar Index fell 0.1%
    • The euro rose 0.1% to $1.1272
    • The Japanese yen was little changed at 113.69 per dollar
    • The offshore yuan was little changed at 6.3715 per dollar
    • The British pound rose 0.3% to $1.3266

    Bonds

    • The yield on 10-year Treasuries declined one basis point to 1.43%
    • Germany's 10-year yield was little changed at -0.37%
    • Britain's 10-year yield advanced one basis point to 0.73%

    Commodities

    • WTI crude dropped 1% to $70.06 a barrel
    • Brent crude fell 0.5% to $73.35 a barrel
    • Spot gold was little changed

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