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Daily Wrap Up 29 November 2021

29 Nov 2021 04:30 PM

Risk-on mood dominates despite omicron variant fears

The mood in the markets today is very different to what was seen last Friday when traders were running for the hills due to renewed concerns about the pandemic. In the past few days there has been a lot of worries about the omicron variant of Covid-19, and even though it is still in the news, the mood is surprisingly bullish. It was reported the new strain of the virus is “unusual but mild” and that seems to be the driving force behind the rally in stocks today. The pandemic has been with us for almost two years, and typically there are sharp declines in risk-on assets whenever there are fears about a new variant or a spike in cases, as that is often the warning that tighter restrictions are in the pipeline.

In recent months, economies have reopened so that contributed to case numbers rising. For most countries in Europe and North America, it wasn’t too much of a worry, as hospitals were not inundated with patients, but there were creeping fears that countries are sleep walking into lockdowns. The omicron variant sparked a severe sell off in stocks, industrial metals, and oils last Friday, but now that medical experts know a little more about the strain, some of the anxiety surrounding it has faded. The DAX and the S&P 500 are showing respectable gains today, but they are more than 6% and 2% below their respective all-time highs. Oil and banking stocks are helping the FTSE 100 today.

Oil was hammered last Friday due to worries the new variant of the coronavirus would trigger lockdowns, and in turn that would lead to dampened demand. On the run up to the sell-off, oil was in reasonably good shape due to squeezed levels of production amid a reopening global economy. Later this week, OPEC+ will hold a meeting and the body are expected to announce they will be lifting output by 400,000 barrels per day. In recent months, there has been growing pressure on the group to lift output as higher energy prices are a major factor behind the rising inflation rates seen around the world.

Gold is facing selling pressure on two fronts. Firstly, the overall risk-on mood is driving up demand for industrial metals and stocks, and dealers are less interested in buying lower risk assets like gold. Secondly, the metal is offside due to the firmer US dollar. The greenback is pulling back some of the ground it lost last week, and the broader bullish trend remains intact.

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