Markets stage comeback rally as COVID fears ease.. for now

1 December 2021 By Lachlan Meakin

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After Fridays steep decline on concerns of a resurgent COVID strain, global markets staged a comeback rally on Monday. Dip buyers appeared after investors reassessed their worst-case scenarios on the back of reassuring news that the threat from the omicron strain may have been initially overstated.

  • Dow jones up 236.6 (0.68%)
  • NASDAQ up 291.18 (1.88%)
  • S&P 500 up 60.65 (1.32%)
  • DAX up 23.82 (0.16%)
  • FTSE up 65.92 (0.94%)

Risk linked assets performed particularly well with the tech and growth stock heavy NASDAQ and Cryptos outperforming while bonds sold off signalling a rotation from defensive risk off assets into risk on mode.

This was also evident in the FX market with recent steep declines in the risked linked  AUD and NZD halted, both antipodeans holding at long term support levels, while safe havens CHF and JPY gave back some of their Friday gains.

There will be an interesting and likely volatile week ahead as headlines regarding this new strain hit and traders reposition themselves. With lockdowns and borders already being closed in some countries, Monday’s market optimism may be short lived.

Unscheduled news could be a big driver of markets this week, there is little doubt traders will be keeping a sharp eye on any revelations or developments regarding this new strain and positioning themselves quickly on it.

It also will raise the question of central bank actions going forward, will the theme of gradual tightening continue? Or will we see the banks pull back and pivot to the dovish side?

Overnight we will see s slew of Federal Reserve governors speak, including Chairman Jerome Powell, whilst it is probably too early to see any change in the language around tapering timeline, we may see some interesting questions thrown at them regarding omicron and possibly some market volatility as a result.

 

In scheduled economic announcements, along with the fed governors speaking we have Canadian GDP released for October which is expected to come in quite soft at 0.0% after a miss to the downside the month before, with Oil prices taking a beating in the last few days, another miss will likely see, what some consider an overvalued CAD sell off. With AUDCAD at a long term support zone, it could be worth watching this pair for any opportunities on the release.

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