Daily Wrap Up 2 December 2021

2 Dec 2021 06:46 PM

Europe underperforms, gold loses its shine

European equity markets are down on the day because of the sizeable losses seen in the US last night. Yesterday, America recorded its first case of the omicron variant of the Covid-19 virus, and that impacted markets in Asia and Europe. European indices enjoyed major rallies yesterday, so it feels like traders were looking for an excuse to take some money off the table. The worry in relation to the omicron strain of the coronavirus in the US was short lived as US markets are showing modest gains this afternoon. Traders despise uncertainty and typically their reaction is to fear for the worst, so it’s possible the declines seen on Wall Street yesterday were overdone, hence why the S&P 500 is up 0.3% today.

US Treasury Secretary, Janet Yellen, cautioned the strain of the virus could cause ‘significant problems’ for the economy. Higher wages are a factor behind rising inflation and Ms Yellen said the markets need to be realistic about what the government can do with respect to reducing inflation – which sounds like a warning that prices are likely to remain elevated for a while. The Biden administration and the Federal Reserve might not be too happy with the inflation rate, but their policies have greatly assisted the labour market. The jobless claims reading came in at 222,000, up from 194,000 last week, but it undershot the 238,000 forecast. Even though the jobless claims update was well-received, the US dollar is down on the session.

Yesterday’s ADP report was 534,000, and it was the third consecutive month that it topped the 500,000 mark. Tomorrow the latest US non-farm payrolls report will be posted, and economists are optimistic it will be a strong update as the headline reading is tipped to be 553,000, which would be a slight improvement on the 531,000 recorded in the previous update.

Gold has dropped to its lowest mark in almost one month, and silver traded at a two-month low. The weakness in the bullion market is underlined by the fact the US dollar is in the red, historically a dip in the dollar has lifted gold and silver as they are traded in the currency. It is also worrying for gold that it can’t muster a rally even when European stocks are in the red.

Ahead of the OPEC+ announcement, there was talk the body might only look to raise output by 200,000 barrels per day (bpd) from January, but in the end, the group of oil producing nations confirmed it intends to raise production by 400,000 bpd – which is a continuation of its existing plan. WTI and Brent crude fell as a result, the energies are off the lows of the session, but they briefly printed new three-month lows in the wake of the news.

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