Espresso morning call: Monday 29th November 2021 trading updates

Overview

Risk appetite is rebounding this morning. After a huge knee-jerk reaction lower for risk assets on Friday, there is an unwind today. However, with many questions and risks posed by the new Omicron variant, the question is whether this risk rebound can last amidst the uncertainty. The low liquidity would have played a role in Friday’s sell-off, so how US traders react today will also be key.

Today’s news

• Main drivers: Sentiment looking to rebound; Omicron variant appears in Europe; US traders return to their desks; Fed chair Powell speaking; economic calendar: Eurozone sentiment and Pending Home Sales
• Sentiment looking to recover: risk assets rebound after a massive sell-off on Friday. It is too early to tell whether this move is sustainable though. Reaction around old key levels of support that was broken on Friday could be crucial. 
• Omicron COVID variant spreading: the new COVID variant first identified in southern Africa has spread to European countries. How these countries respond with border closures and renewed lockdown measures will be key for financial markets. Also, updates on the severity of symptoms/transmissibility of the new variant will be a key factor for the sentiment.
• US traders return: Many traders take a long weekend for Thanksgiving but will be back today. This could mean elevated volatility across markets. It may take a day or two for the dust to settle [expect choppy markets]
• Central bank speakers: four FOMC speakers today including chair Powell:

-FOMC’s Clarida (permanent voter, centrist)speaking at 1800GMT

-FOMC’s Williams (permanent voter, leans slightly dovish) speaking at 2000GMT

-Fed chair Powell speaking at 2005GMT

-FOMC’s Bowman (permanent voter, centrist)speaking at 2205GMT

Economic Data:

-Eurozone Economic Sentiment at 1000GMT is expected to fall slightly to 117.5 in November (from 118.6 in October)

-Eurozone Industrial Sentiment at 1000GMT is expected to slip to 13.9 (from 14.2)

-German inflation at 1300GMT is expected to increase to 5.0% in November (from 4.5% in October)

-US Pending Home Sales at 1500GMT, are expected to be +1.0% MoM in October.

Markets Outlook

Broad outlook: markets remain choppy and are likely to do so for at least the next day or so. A sentiment rebounds as Treasury yields have opened higher, allowing equities to rebound and oil too. There will be big question marks over how sustainable these moves are.

• Forex: USD has looked to rebound against the safe havens (CHF, JPY, EUR), but higher risk majors AUD, NZD, and CAD) remain uncertain.

-EUR/USD has unwound into 1.1250/1.1275 initial support. Resistance has been left at 1.1330. Building a higher low above 1.1225 will encourage the bulls.

-GBP/USD is consolidating this morning. Holding above 1.3315 improves prospects for a potential recovery. Needs above 1.3360 resistance to form a small base pattern.

-AUD/USD has picked up from support just above the 0.7105 crucial August low. Still trending lower, but selling pressure has just taken a pause today. A move above 0.7155 opens a near-term recovery.

• Commodities: a sense of support for precious metals. Oil volatility remains elevated in a rebound.

-Gold has been flying higher and lower but support around $1778 is holding and the market is ticking higher today. Resistance for recovery is now at $1815.

-Silver still looking far more volatile than gold. A rebound from $22.90 is just tailing off again around $23.40/$23.50 initial resistance. Resistance at $23.70 is an increasingly important barrier to recovery.

-Brent Crude oil has jagged back higher after a -12% sell-off on Friday. But initial resistance around $76.10 is holding back a recovery now. Expect this to remain highly volatile in the days ahead.

• Indices: A rebound, but the move is struggling for traction now. It could take a few days for the dust to settle.

-S&P 500 futures with a technical rally but it has stalled around 4640/4650 initial resistance. Initial support at 4620 this morning.

-DAX has rebounded this morning but has backed away from initial resistance around 15,500/15,600. Initial support is now 15,270.

-FTSE 100 needs to quickly recover above 7180 to salvage any sense of medium-term recovery. Backing away from 7154 this morning will not help. Bulls will hope that 7000 is a key low now.