The intense flight to safety on Friday triggered a sharp decline in US Treasury bond yields and caused global stock indexes to suffer heavy losses. The greenback weakened against the safe-haven currencies, such as the CHF and JPY, but outperformed high beta currencies. Despite concerning news surrounding the new coronavirus variant Omicron, the market mood seems to have improved modestly early Monday. Investors await the German inflation report and euro area business sentiment data but risk perception will remain as the primary market driver at the start of the week.
Reflecting the risk-averse market environment, the S&P 500 Index lost more than 2% on Friday, the 10-year US Treasury bond yield fell 9.4% and the US Dollar Index dropped 0.75%. US stock index futures are up between 0.4% and 1% in the early European session on Monday. Markets are trying to figure out if the Fed will be forced to adopt a cautious stance with regards to policy tightening in the face of potential economic slowdown.
Although the omicron virus had not yet been detected in the US, Dr Anthony Fauci, the nation’s top infectious disease doctor and the president’s chief medical adviser, said Sunday it was inevitable that the variant would appear in the US.
Meanwhile, vaccine producers are testing the effectiveness of current vaccines against the new variant but they are not expected to announce any results for the next two weeks or so. Pfizer and Moderna both noted that it would take them around 100 days to adjust the vaccine if needed.
EUR/USD climbed above 1.1300 but lost its bullish momentum at the start of the new week. The pair is currently trading in the negative territory around 1.1280.
USD/JPY pair lost more than 200 pips on Friday and opened with a small bullish gap on Monday. The pair stays within a touching distance of 113.00.
GBP/USD struggled to gain traction ahead of the weekend as investors reassess the Bank of England’s rate hike prospects. The pair stays in a consolidation phase above 1.3300 to start the week.
AUD/USD and NZD/USD both fell sharply on Friday. Although these pairs stage a rebound on Monday, they remain sensitive to changes in sentiment.
Gold capitalized on plunging US T-bond yields during the American trading hours but erased a large portion of its daily gains before ending the week around $1,790. XAU/USD is edging higher toward $1,800 in the early trading hours of the European session.
The worsening energy demand outlook amid renewed concerns over the new coronavirus variant causing lockdowns and restrictions caused oil prices to fall sharply. The barrel of West Texas Intermediate lost more than 12% on Friday and was last seen rising 5% at $71.50. The commodity-sensitive CAD struggled to find demand and USD/CAD touched 1.2800 for the first time since late September. The pair is currently edging lower toward mid 1.2700s.
Cryptocurrencies: Bitcoin fell below $54,000 on Sunday but reversed its direction and started to advance higher toward $60,000. Ethereum trades in the positive territory above $4,300 after testing $4,000 over the weekend.