Daily Market Commentary 1st December 2021

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US equities crashed again overnight, wiping out the previous sessions rebound, from the turmoil closing out last weeks debacle, triggered by the new ‘Omicron variant’. The new viral mutation has once again tested markets, with the prospects of further disruptions, caused by the impact of further border closures and internal restrictions. This has lead to a crash in demand and so oil prices have been savaged and US Bond Yields have crashed.

Fed Chairman Powell testified before Congress that the Fed would look to address QE in the upcoming meeting on monetary policy. The Fed have finally concluded that inflation is the biggest economic challenge and cast aside the narrative that it was ‘transitory’. The Fed have been misleading the world with their denial of inflation, especially considering the pressures from the global energy crises and supply chain break-downs. The focus on inflation will mean that interest rate rises are on the very near horizon. Equities reacted negatively to the prospect of losing their ‘virtually unlimited supply of money’ from the Fed and promptly dived. The fear surrounding the mutated omicron virus, sent US 10 Year bond yields crashing to 1.45%, the opposite direction to be expected considering the Feds intentions. The US Dollar was undermined by this, as the tighter monetary policy should support a stronger Dollar. The EUR jumped back to 1.1300, supported by their own inflationary problems, while the GBP fell back to 1.3250.

Oil crashed below US$65/barrel, reflecting the demand hit from the virus, impacting on global growth prospects. Commodity currencies were also in the firing line, with the AUD falling back below 0.7100, while the NZD crashed under 0.6800. Markets are in turmoil, so watch the progress of the virus. Central Banks and their strategy to combat runaway inflation will key and whether the new strategy is disrupted by the virus?

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