Omicron Spooks Global Markets

Yesterday, equities across the globe took a beating as the financial world became more concerned over the Omicron variant. From Australia, the RBA kicked off the morning by delivering the minutes from the meeting held earlier in December.

Another set of economic data for Tuesday, which will be monitored carefully, are the UK’s core and headline retail sales figures for November on an MoM and YoY basis.

Yesterday, equities across the globe took a beating as the financial world became more concerned over the Omicron variant. But probably, it is the possible responses from the governments of the developed countries that worry investors more.

The potential lockdowns and restrictions that started retaking place are forcing businesses to re-think their strategies to stay afloat. Although consumer spending has been on a rise for a few months in developed countries, it is believed that all the recent gains could be set aside by businesses for their contingency.

This also means that business growth could suffer in the near future, and dividend pay-outs might get halted for a while. Hence, we see some investors taking parts of their profits off the table. That said, we are not sounding the alarm yet, as this move could just be seen as a measure of precaution, and the indices may still reverse higher in the near term.

Yesterday, the Nikkei 225 index got picked up by the bulls near the 27800 hurdle and is now seen moving up again. The price is currently trading above a short-term tentative upside support line drawn from the low of Dec. 1. As long as the index trades above that trendline, we will stay positive, at least with the near-term outlook.

Nikkei 225 may travel a bit higher and test the 28675 hurdle, marked by an intraday swing high of Dec. 17, where a temporary hold-up might occur. Even if the price retraces slightly lower from there, as long as the index stays somewhere above that upside line, the buyers could step in again.

If so, they may shoot back to the 28675 obstacles, a break of which could lead to a test of the 28901 level, marked by the high of Dec. 17. Alternatively, if the index ends up breaking the aforementioned upside line and then falls below the 27800 hurdle, which is yesterday’s low, this might open the door to some lower areas.

Nikkei 225 could then slide to the 27580 hurdle, or even to the 27400 level, marked by the current lowest point of December.

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Yesterday, in the US, the sectors that took the biggest hits were consumer cyclicals, financials, and basic materials. From the consumer cyclicals, companies such as Ralph Lauren (NYSE:RL), Nike (NYSE:NKE), and Tesla (NASDAQ:TSLA) were among the biggest losers.

Among the financials, banks like Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) were seen losing around 2%. Still, the credit card companies like Mastercard (NYSE:MA) and Capital One Financial (NYSE:COF) lost more than 3.5%, mainly due to concerns of a possible decline in consumer spending.

Although all sectors were in negative territories overall, some individual companies still showed good performances. The least lousy performing sector was the utility sector, followed by consumer defensive and healthcare.

Companies like the American Electric Power Company (NASDAQ:AEP) and Dominion Energy (NYSE:D) were seen among the biggest gainers. From the consumer defensive sectors, general store companies like The Kroger (NYSE:KR) enjoyed decent gains yesterday.

This is understandable, as shoppers are making their last purchases before Christmas. In the healthcare sector, Pfizer (NYSE:PFE), for obvious reasons, enjoyed a 2.59% gain. AbbVie (NYSE:ABBV) and Merck & Company (NYSE:MRK) have gained around a percent.

h2 RBA Meeting Minutes and Canada’s Retail Sales/h2

The RBA kicked off the morning by delivering the minutes from the meeting held earlier in December. During that meeting, the bank decided to maintain the cash rate target at 10 basis points and continue purchasing government securities at $4 billion a week until mid-February 2022.

Australian employment looks strong, and job advertisements are at their highest. Although inflation is high, it remains at maintainable levels. The bank stated that it would keep the interest rate at the current level until Australia’s actual inflation is sustained between the 2% and 3% target range.

Another set of economic data for Tuesday, which will be monitored carefully, will be Canada’s MoM core and headline retail sales for October. Currently, both numbers are expected to have improved quite significantly. The headline one is believed to have risen from -0.6% to +1.0%, and the core reading is forecasted to have improved from -0.2% to +1.6%.

AUD/CAD – Technical Outlook

AUD/CAD continues to balance above a short-term tentative upside support line taken from the low of Dec. 8. That said, to get a bit more comfortable with the upside, a push above the current highest point of December would be needed, which is at 0.9232.

If we see a pop above the 0.9232 barrier, this will confirm a forthcoming higher high, and more buyers could join in. AUD/CAD might then rise to the 0.9250 obstacle, a break of which may clear the path to the 0.9282 zone, marked near an inside swing low of Nov. 1.

On the downside, if the pair breaks the previously mentioned upside line and then falls below the 0.9185 zone, marked near the current low of today, that could change the direction of the current short-term trend. AUD/CAD may send the rate to the 0.9155 territory or even to the 0.9125 level, marked by an intraday swing low on Dec. 14.

h2 Elsewhere/h2

UK will deliver its CBI industrial trends orders for December. The number is believed to have declined quite significantly, going from 26 to 13.

Written By: JFD Team