Markets opened the New Year quietly, in light trade and no major moves. The biggest aberration was the US Bond Yields, which spiked sharply, with the 10 Year blowing through 1.6%! This move is no surprise considering where the market is and the monetary policy expectations for the coming year. The Fed will abolish QE and begin the cycle of rising interest rates, in a belated effort to control spiralling inflation. This was a boost to the US Dollar, with the EUR retracing below 1.1300, while the GBP slipped back below 1.3450.
The huge increases in the transmissions of the virus, are being largely ignored by the markets, as the hospitalisation and death rates remain low. This may well be part of a solution to the pandemic, offering the opportunity for herd immunity, thus removing the need for the failed vaccines. Germany, Holland and Austria are among the countries reimposing strict sanctions on their populations, while most can afford to let the omicron provide natural immunity to their populations, without ineffective vaccines. The rising reserve immediately hampered the resurgent commodity currencies, with the NZD falling back to 0.6780, while the AUD crashed below 0.7200.
All eyes remain focused on growth and inflation.