Espresso morning call: 2nd December 2021 trading updates

Overview

Markets jagged lower yesterday on the announcement of the first omicron case of COVID in the US. Volatility remains elevated and attempts to form meaningful recoveries continue to have the door slammed shut. There is seemingly an appetite for the recovery but whilst volatility remains high, reaction to any negative news will be a key defining factor. It is a relatively quiet economic calendar today but lots of Fed speakers to add into the mix.

Today’s news

• Main drivers: Sentiment trying to recover; Omicron found in the US; OPEC+ meeting today; US tariffs on UK steel; lots of Fed speakers; Economic calendar: Eurozone unemployment and US Weekly Jobless Claims
• Sentiment trying to recover…again: another lurch lower on seemingly negative omicron news. US futures are rebounding, but European markets are playing catch up on last night's decline on Wall Street. Forex looking slightly risk positive.
• First US omicron case: such is the volatility and sensitivity around omicron news, equity markets fell sharply on this news. Markets remain extremely nervous. [Elevated volatility continues
• OPEC+ meeting today: the group will discuss whether to pause the monthly increase of production of 400,000 barrels per day. Russian and Saudi sources suggest that the current rate could be maintained in January. The meeting starts around 1200GMT. [Oil even greater volatility]
• US delays on UK steel tariff removal: A tariff on UK steel was supposedly meant to be removed, but the US is delaying on this as it waits to see how the UK/EU discussions on post-Brexit trade pan out. The EU and US have already agreed to the removal of aluminum tariffs. [mild GBP negative]
• FOMC’s Mester supports faster taper: Mester is a 2022 FOMC voter and a hawk. She is open to considering a faster taper which could end in Q1 or early Q2 2022. [USD supportive]
• Central bank speakers: there are four Fed speakers today, watching for further comments on inflation and the pace of the FOMC taper. Especially in the wake of Fed Chair Powell’s hawkish turn:
• FOMC’s Quarles (2021 voter, mild hawk) speaking at 1600GMT
• FOMC’s Barkin (2021 voter, mild hawk) speaking at 1630GMT
• FOMC’s Bostic (2021 voter, hawk) speaking at 1630GMT
• FOMC’s Daly (2021 voter, mild dove) speaking at 1630GMT
• Economic Data:
• Eurozone Unemployment at 1000GMT is forecast to improve slightly to 7.3% in October (from 7.4% in September)
• US Weekly Jobless Claims at 1330GMT is expected to increase to 238,000 after having dropped sharply to 199,000 last week

Markets Outlook

Broad outlook: sentiment remains nervous with any markets deemed higher risk susceptible to selling pressure on negative news.

Forex: a mild risk recovery this morning.

• EUR/USD has settled down of late under 1.3370/1.3380 resistance. There is support at 1.1235/1.1260 that needs to hold for any recovery to be possible.
• GBP/USD continues to falter under 1.3350/1.3370 resistance and a five-week downtrend. There is a sense that selling momentum is easing though.
• AUD/USD early consolidation today after another failed attempt at a recovery yesterday. Recovery prospects are now hinged on resistance at 0.7170/0.7180 being broken. Initial support 0.7095 above the 0.7062 key low.

Commodities: Precious metals recovery has been aborted. Oil remains corrective, watch for OPEC+ volatility

• Gold recovery potential is now breaking down as the market again ticks back lower and is now looking towards a test of the $1758 key higher low. Intraday sellers are increasingly emerging at around $1790/$1800 now.
• Silver is turning increasingly bearish again as intraday rallies continue to be sold into. A breach of $22.20/$22.35 support opens the crucial low at $21.40

• Brent Crude oil with lower highs still forming amidst elevated volatility, rallies remain a chance to sell. Initial resistance at $72.50/$75.00. Expect volatility on OPEC+ news.

Indices: Wall Street remains corrective, European markets in choppy consolidation. 

• S&P 500 futures have breached the support band 4550/4590 and now attention turns to the primary uptrend at 4455 today. Until bad news is absorbed with a degree of calm, it is difficult to see any recovery being sustainable. Initial resistance is now 4450/4490.
• DAX is in a choppy phase of trading, but there is still a sense that a recovery could be forming. Breaking above resistance at 15,462 is needed to form a reversal pattern and sustainable traction. Initial support at 15,122.
• FTSE 100 could also be building a recovery, but for now, high volatility is a concern. There is a higher low at 7033 and the resistance at 7180/7200 remains key near term.