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Daily Wrap Up 4 January 2022

4 Jan 2022 04:33 PM

Optimism overrides omicron headlines

Stock markets are extending the impressive gains that were racked up last year as traders remain undeterred by the headlines about the rising number of omicron cases. The strain of the virus is very transmissible, but seeing as hospitalisation rates are comparably low, there is no fear that governments will impose tough restrictions. To a certain extent, there is a sense that we will just have to live with the omicron variant. The absence of fear surrounding omicron combined with the continued belief the global economy will recover is driving equity markets higher.

The FTSE 100 is trading above 7500 for the first time since 2020 thanks to a strong performance in oil, banking, and airline stocks. Last month, the Bank of England surprised dealers by lifting interest rates, and there is growing speculation the bank will hike rates again in the months ahead. Banking stocks usually perform well in higher interest rate environments, hence why NatWest, Lloyds and Barclays are showing solid gains today. The travel sector is arguably the most sensitive to the coronavirus story and considering that Ryanair, easyJet, Wizz Air and International Consolidated Airlines are all up between 8% and 12%, it is fair to say there is a lot of optimism doing the rounds.

The US ISM manufacturing report threw up a few surprises today, as the headline reading was 58.7, missing the 61.1 forecast. The internal components of the update showed that prices paid was 68.2, which was a big drop form the 82.4 posted in the last announcement. Recently, there has been a lot of chatter about high levels of inflation, and if the costs of manufacturing are retreating from excessive levels, perhaps, the Federal Reserve will not be in a rush to hike rates in the months ahead. Earlier today, the US dollar index was up over 0.25%, but the greenback swung into negative territory following the release of the ISM data. There were some encouraging aspects to the report too, as the new orders level was 60.4 and the employment metric edged up to 54.2 from 53.3. Traders will keep employment information at the forefront of their minds as the latest US non-farm payrolls report will be posted on Friday.

Gold is comfortably back above the $1,800 mark now that the US dollar is down on the day. In the early hours of Sunday, gold registered a six-week high, but the upward move was short lived as the dollar enjoyed a bullish move yesterday. WTI and Brent crude received a shot in the arm from OPEC+ as the body confirmed it will lift its output next month by 400,000 barrels per day – meeting forecasts.

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