Markets overnight edged out a small gain despite a stronger than expected inflation reading. Markets have somewhat priced this in with expectations that the FED could raise rates 4 times this year. The FED meets next on the 25th of January, with many analysts predicting a rate rise in March. Bonds yields didn’t rise overnight which indicates that investors were expecting a high inflation reading. We will need to keep an eye on this space as many people are still on holiday therefore we may see some delayed reactions.
The Omicron variant continues to see consumers and investors nervous as it continues to spread very quickly around the world. We are seeing the highest recorded weekly cases locally and worldwide of any variant so far. The Worldwide case numbers are almost double the highest on record jumping from 6 million a week to 10 million. The silver lining here is that the weekly deaths attributed to covid are dropping.
Cases in Australia continue to rise. We will start to get a clearer picture of cases number as states are starting to record rapid tests. The main focus is on the hospitalisation numbers rather than daily cases. There is no real clear indication of what’s to come if this spike in cases continues to climb. The ICU numbers still seem low but are climbing with NSW at 175 with 1,550 beds available. VIC is 112 with 1,476 beds. We will be keeping an eye on these numbers as an indicator for potential further locks downs.
The XJO is expected to open slightly higher this morning with the futures indicating an open around 7,450. 7,450 to 7,475 has once again proven to be key resistance. Our market continues to whipsaw as we continue to range trade. The uptrend on our market is becoming less and less clear the more time we spend in the channel.
There is also a short-term uptrend line in play which our market should bounce off this morning. This is somewhat forcing our market into the point of a triangle and typically we would expect the underlying uptrend to win. This feels less certain because the uptrend line has only been in play for a month or so, whereas the more sidewards pattern has been dominant for much longer.
Miners continue to outperform in the short term with the strength seen in Iron Ore and other industrial commodities.
US shares rallied overnight despite US CPI growth rising to its highest level in 39 years, with growth of 7 percent year-on-year. While the inflation number was high, it was broadly in-line with what was expected by analysts. US shares managed to close higher, but they closed below the intra-day highs and above the intra-day lows, around the middle of the overnight trading range. The consensus view around US interest rates is that the Federal Reserve will look to start lifting rates from March onwards. In other economic news, there was a further drawdown in US crude inventories. Overall tighter monetary policy will shift the investor focus from growth stocks to more traditional value stocks. Ten of the eleven sector groups of the SP500 closed higher overnight, with only healthcare stocks finishing slightly lower. Materials stocks fared the best, followed by Discretionary stocks.
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