Top 5 Things to Watch in Markets in the Week Ahead

Top 5 Things to Watch in Markets in the Week Ahead

Concerns that the new Omicron version might stymie the global economic recovery from the almost two-year epidemic have brought COVID-19 back to the forefront of investors' minds. The additional stress may cast doubt on the Federal Reserve's ability to remove stimulus swiftly enough to combat soaring inflation. In light of this, the U.S. employment data on Friday and Fed Chair Jerome Powell and Treasury Secretary Janet Yellen's appearance on Tuesday will be widely monitored. The spotlight will be on oil prices ahead of the OPEC+ summit on Thursday. Meanwhile, the euro zone's inflation statistics on Tuesday will be under the focus ahead of the European Central Bank's much-anticipated meeting in December. Here's everything you need to know to get your week off to a good start.

Is there a new epidemic on the horizon?

The selloff was prompted by the discovery of a new coronavirus strain, and Wall Street's three main indices dropped on Friday as they reopened following Thursday's Thanksgiving holiday, with oil, financial, and travel-related sectors suffering the brunt of the selloff.

While little is known about the new version discovered in South Africa, experts believe it has a large number of mutations that might make it more vaccine-resistant and transmissible than the Delta variant.

"The end of the epidemic was being celebrated in the markets. Slam. It's not finished yet, "Cumberland Advisors chairman and top investment officer David Kotok told Reuters. "All policy problems are on pause, including monetary policy, business trajectories, GDP growth predictions, leisure and hospitality recovery, and so forth."

Despite concerns about continuously growing inflation, investors had been optimistic about the robustness of the economic recovery until Friday, owing to widespread vaccination availability and advancements in treatments.

Report on Employment

A strong November jobs report might strengthen the argument for the Fed to accelerate the dismantling of its $120 billion-per-month stimulus program at its December meeting. However, a new outbreak of the pandemic might jeopardize such measures.

Investors began pricing in a faster taper and early interest rate rises due to concerns about soaring inflation and evidence of a stronger economic recovery.

The economy added 550,000 jobs in November, pushing the unemployment rate down to 4.5 percent, according to Friday's non-farm payrolls data.

The Institute for Supply Management's manufacturing and services indices, as well as statistics on pending home sales, consumer sentiment, and the Federal Reserve's Beige Book, are all on the economic docket for the next week.

Powell and Yellen both testified

Fresh off President Joe Biden's nomination for a second term, Fed Chairman Jerome Powell is scheduled to speak before the Senate Banking Committee in Washington on Tuesday on the CARES Act, the central bank's pandemic-era stimulus program. Janet Yellen, the US Treasury Secretary, is also expected to speak.

On Wednesday, the House Financial Committee will hold a similar hearing.

In heightened pandemic concern, investors will be seeking new information on the prospects for the economy.

The future of oil demand

Oil prices fell $10 a barrel on Friday, the most in a single day since April 2020, as news of the new Omicron variety prompted governments to tighten travel restrictions, fueling fears that a supply glut will worsen in the first quarter.

Following the United States and other countries' decision last week to release oil from strategic reserves to cut gasoline prices, the Organization of Petroleum Exporting Countries and its Allies (OPEC+) is set to convene on Thursday.

OPEC+, for its part, has maintained monthly output increases of 400,000 barrels per day (bpd) since August, despite requests to do so to lower oil prices.

PVM analyst Tamas Varga told Reuters that "OPEC's early evaluation of the coordinated (stockpile) release plus the abrupt discovery of a new version of the coronavirus raises severe worries regarding economic growth and the oil balance in the coming months."

Inflation in the Eurozone

On Tuesday, the eurozone will disclose November's flash inflation numbers. In October, consumer price inflation reached a 13-year high of 4.1 percent, and it is anticipated to remain considerably over the European Central Bank's 2 percent target throughout next year. On Monday and Tuesday, Germany, Spain, and France will disclose their CPI data.

With inflation rising, the ECB is facing increasing pressure to tighten monetary policy. However, with Europe battling a new strain of the virus and news of the new strain, policy doves have additional ammo to use against those pushing for the stimulus to be phased out sooner rather than later.

At its December meeting, the ECB is anticipated to strengthen its inflation prediction for 2022. Investors also expect the ECB to declare that its pandemic-era asset purchase program will end in March while ramping up its longer-running bond buy program to compensate for the stimulus reduction.