Why Are Global Stocks Rallying Despite Omicron Risks?

Okay, very good morning to you. It is Wednesday the 8th of December, and yeah, really firm close on Wall Street last night. So just when you thought about a week ago things were getting a little bit tentative for US stocks up at these kind of elevated levels, we've now resumed trend and we're kind of really heading back towards all-time highs again. And as you can see here, US stocks staged their biggest rally yesterday, in fact, in 9 months. Treasuries fell, sending the 2-year yields to their highest since March of 2020. And we'll talk about the Fed and economists' expectations about tapering in a moment. Um, US close, S&P up 2.1%, the Dow 1.4%. But check this out, the NASDAQ gained over 3%. Uh, the VIX was down about 20% yesterday. And as you can see here, it's one of the best days for global stocks in more than a year. Now Now, question mark, of course, is what's the one single catalyst that's caused this? And in reality, there really isn't one. I wrote about this yesterday in my daily Market Maker newsletter, which if you're not subscribed to already, just go to AmplifyMe.com/market-maker, pop in your email and you get that free email every day. But there's a couple of different things. Obviously, one of the main ones is the consensus generally forming around Omicron not being as lethal as Delta, albeit more transmissible, more likely. The People's Bank of China obviously came out the other day and they cut their RRR, their reserve requirement ratio. They also came out with lots of commentary talking about that they had room for a variety of monetary policy tools in order to help stabilize the economy. This also came at the same time that latest Chinese trade data came out and exports actually grew faster than expected to a record level. External demand still seen as very high going into the holiday season. The easing of their power crunch that they've been having of late. Then you've got the US debt ceiling issues got averted, really. The passage through Congress was much more smooth than certainly I was anticipating because normally these things go down to the wire. Aggressive rate pricing somewhat has settled a little bit. It was almost like the market overreached in terms of how aggressive they were pricing in severity of rate hikes in the near term, that's settled a little bit. And I guess if anything, it's more kind of optimal tightening speed against more economic growth scenarios rather than overextension of those moves. And then Russia, Ukraine, obviously we'll get around to this in a moment. Putin and Biden spoke yesterday, but a lot of the people I talk to and a lot of things I read kind of suggest to me this is more the whole kind of friction that exists at the moment and this military buildup of personnel on the border between Russia and Ukraine. A lot of this, um, would suggest more tactical optics rather than genuine invasion risk, if you like, into those areas, um, as much as the complexity of the geopolitical environment. So it's kind of a, a real amalgamation of lots of these different things all coming together that's creating this new renewed risk-on move. And, you know, this morning we've got a little bit of a fade. Equity index futures, the DAX, seen just slightly lower. We're just kind of turning off a little bit from the highest levels that we saw yesterday, but that comes as absolutely no surprise just given the fairly one-dimensional rise that we had yesterday. Just looking on a daily continuation chart, so this starts to bring in much of the year-to-date price action, and really just focusing in up on around this 4711-12 kind of marker here with this rectangle on top right-hand corner here. This is the S&P future, and you can see yesterday's rally really puts us back up to this area of key resistance that really forms then the all-time high kind of territory. So I would suggest that without really any new fresh catalyst at this point, perhaps we've seen the high for now. Obviously we've got the inflation data, US CPI, looming on Friday, which is going to be quite key for how that index will perform going forward. As far as the Nasdaq is concerned, definitely there's been a good clear narrative to some of the price movement. And I thought I would mark it up and, and show you. So let me just adjust my chart so you can see everything. So here you've got the Powell hawkish Senate speech. If you remember, this is when Jerome Powell came out and said, you know what, transitory is not really a valid term to use anymore. We're going to potentially look to— well, he's kind of heavy hinting that the acceleration of taper is coming. Going to talk about that in the upcoming December meeting, which is only around a week away now. And that was when equities thought, wow, that's, that's a super hawkish pivot from the downside risks that he was highlighting from the initial emergence of the Omicron virus just before that. And equities dipped. We also sold off a little bit more. Again, the kind of whipsaw price action we were seeing, pickups in the volatility index on the back of the Omicron concerns. And look where we are now. We've literally come full circle back to the pre-Powell speech peak that was seen on the first of the month and naturally finding some resistance at the technical same point here at 16417. So the Nasdaq's had a phenomenal recovery really over the course of the last, um, two sessions or so. All right, well, look, let's talk about a few other things for the Nasdaq specifically. 2 other stories. I mean, the Nasdaq was up 3%. Don't forget yesterday, Dow was only up half of that. So a couple of the, the key reasons that was underpinning that from an equity-specific story perspective was Apple. Apple, obviously a large proportion weighted stock for the index and certainly helps the equity sentiment. And as you can see here, Morgan Stanley analysts have come out and they've raised their price target on Apple to $200 from $164. Now, the rationale there is that they're maintaining their equivalent of a buy rating, arguing that new products from Apple like augmented reality headsets or self-driving car are not yet baked into the share price, hence the rationale to push to $200. Shares yesterday in Apple were up 3.5%, new all-time high for the stock in fact. And so despite some of the movements we were seeing last week in highly volatile times, there were actually days where Apple just completely bucked the trends. Such as a large company and large cash piles that it have, it kind of doesn't fit to the tune of that normal kind of risk-off environment that you might see, um, or not just risk-off but a more hawkish rate environment as well. They're being fairly robust against that at the moment despite the kind of accelerated thinking over tapering and rate hike cycles in the US. The other company as well that saw really solid gains yesterday was Intel. They were up just over 3%, um, comes after news that they plan to take their self-driving car unit Mobileye public in the US in the middle of next year. The IPO could value Mobileye at more than $50 billion according to some reports. All right, let's move on and talk a little bit of an update on vaccines. Because the latest one came out last night from BioNTech. I did share on my Twitter account if you want to have a read of it from the FT, but essentially Omicron evades immunity induced by Pfizer's shot better than other COVID-19 variants according to laboratory experiments that indicate then that booster shots really are quite necessary and could help stop the highly mutated strain. In the first reported experiments gauging the effectiveness of Pfizer-BioNTech's vaccine, researchers at African Health Research Institute found Omicron infection results in about 40-fold reduction in virus-blocking antibodies compared with the strain detected in China almost 2 years ago. So you can see the evolution that the mutations has, has meant for then, um, how now certainly from a vaccine strategy, boosters likely to be a necessity going forward, as is really already the case in the Western developed world, at least being rolled out at this point in time. Separately, the other one that's quite positive news is Glaxo. It came out yesterday, but just get you up to speed. The company said research shows that its COVID-19 antibody treatment is effective against full combination mutations in the new Omicron variant. Don't forget that antibody treatment typically will come and it's, and it's taken once people have COVID in order to offset then any associated risks of a worsening of their conditions to the point of mortality, rather than actually trying to stop the transmissibility, if you like, of the virus, which is what we were just talking about with the Pfizer-BioNTech vaccine, which is going to likely require them more boosters going forward. The other thing then is how is the US faring? We've talked about the US a little bit. New York City has been slowly ratcheting up how strict their, their kind of lockdown is becoming, or certain rules associated with that. And so one of the things that's certainly I've been talking about before is on a nationwide level, the actual vaccination rates are relatively low, certainly when compared to the likes of the UK and mainland Europe. But one of the things that the new Omicron variant is having, and I guess psychologically as well as we go into the Christmas period and people don't, don't want that to be disrupted in their ability to be able to see their friends and loved ones and so on, Actually, Americans are lining up for booster doses of COVID-19 vaccines at a record pace. And last week, in fact, it was tracking at around 1 million booster shots a day nationwide. Around 55%, for context, of people aged 65 and older who are eligible for a booster have now received one in the US. Um, taking things a little bit closer to home Obviously Boris Johnson's under a little bit of pressure politically for, for other things like partying inappropriately according to the government's rules last Christmas. But that aside, one of the things that Telegraph are talking about is the UK government is reportedly drawing up plans for a Christmas work from home order as Prime Minister Boris Johnson considers measures to slow the spread of the Omicron variant, which number— numbers are small at the point— at this point in time in the UK. But they are rising and they're anticipated to do so. You had the Health Secretary, Sajid Javid, already talking about earlier this week of community outbreaks and so on. So that is somewhat inevitable. Obviously, as per the market's more positive turn we've seen in recent sessions, the market seems satisfied about the fact that the lethality, if you like, of this virus is probably less than Delta, as a positive. But that doesn't nonetheless stop the idea, as per the latest studies out of South Africa and so on, that this is going to be a highly transmissible virus and likelihood case rates are going to go up. So Plan B is being discussed, and, and certainly, I guess, if you remember last year, we had quite onerous restrictions in place in order then to somewhat control and allow freedom around the Christmas-New Year period. So be interested to see whether or not the UK government follows that strategy again going forward. On the geopolitical front, you obviously had Biden and Putin meeting, yet meeting yesterday, 2-hour video call. Biden told President Putin directly that if Russia further invades Ukraine, the US and their European allies would respond with strong economic measures. The main one obviously a lot of people are talking about is Washington is said to have asked Berlin to back a threat to the gas pipeline Nord Stream 2 to deter Putin from any military-type action. In addition, Biden told Putin that the US would provide additional defensive materials to the Ukrainians above and beyond what they're already providing. You know, the one thing I guess overall, as I said at the very beginning, I think the markets, as you can tell from yesterday's session, have been in a relatively risk-on mood. So they're hardly nervous about the ramifications of friction between these two nations. And I think, I think ultimately it is a lot of optics at this point in time. And in reality, it's the fourth direct conversation that Biden has had with Putin so far since coming in as the new administration, which is actually quite a lot comparative to where we were at the end of the Trump kind of era. And so all in all, I think, you know, Putin trying to get back in the table, if you like, the high table. and this is a way of leveraging down to try and make that ensure that that happens. So yeah, at the moment I think we continue to monitor it. I don't think it's anything too much to, to consider or worry about from a short-term trading perspective. The other thing then, I thought was quite interesting was the FT. They've, they've just conducted their latest kind of survey with economists talking about Fed policy. One of the things here that economists have said is they predict a complete taper of Fed bond buying by the end of March. This is kind of the pivot that really has been led by a change of more hawkish commentary from the Fed, where as per like what Goldman's have been saying, they're likely to ramp up from $15 to $30 billion of their purchases, which will mean they can wrap it up a little bit earlier from the middle summer, June of next year, to March. Now, a couple of interesting graphics here in this FT article. Again, I've shared them on my, my Twitter account already. But this is to give you a bit of a flavor for where economists' heads are at. They, they surveyed 48 of them last week, and here you can see how likely do you think the Fed is to actually cease those purchases by the end of March 2022, so completely wrap up tapering. And you can see here 47% here somewhat likely, that's a more than 60% chance. So coupled in then with very likely, more than 90%, 9% then is the overall tipping the balance of the majority that most are anticipating then by the end of Q1 of next year. In terms of the rate perspective, when do you think it's most likely the Fed will raise the federal funds rate by 25 basis points or more above its current level? Most people then looking at Q2 of next year, 50% of the polled economists are expecting that. Okay. A quick look at the calendar for today. It is incredibly quiet actually as far as data is concerned for UK and Europe. In fact, there's nothing really meaningful of note. Then we get into the afternoon. No 1:30s from the US, but you do have the Bank of Canada rate decision, not expecting any change there. They've got the JOLTS job openings in the US at 3, and then the weekly oil inventory data as well, which follows the API data last night. Uh, no real meaningful lasting reaction to the API numbers. There's obviously a lot of other things at play on the demand side from monitoring Omicron to supply side with OPEC and what they're doing. But nonetheless, the API last night was a slightly deeper drawdown of 3 million against expectations of 1.2 last night. And then back to the calendar from a speaker's perspective, Lagarde, de Guindos from the ECB speaking this morning, but there's no text to be released according to the ECB media. Office. And then you've got fixed income auctions from Germany, €36 billion of a 10-year note auction later on today at 6 PM London time. But that is it. So hopefully that was useful. Any questions at all, feel free to drop me a comment. If you're watching this for the first time and you've gone through the whole video, thank you, and don't forget to hit the subscribe button. New, new videos coming out all of the time. All right, take care and have a good session ahead.