Risk-on appetite returns but covid headache to be continued

Omicron fears took a back seat on Tuesday, letting global stock indices, risk-sensitive currencies, and energy prices recoup some lost ground. Of course, the pandemic will remain the key driver for market sentiment for longer, at least into the new year, navigating inflation pressures, and therefore, monetary tightening plans accordingly. But for now the recent bearish correction is reminiscent of the short-lived downfall, which stock markets faced in the same period last year, with “buying the dip” remaining a popular strategy among traders.

Almost every single sector was in the green in the pan-European STOXX 600 community, helping the index advance by more than 1% so far in the day. The British FTSE 100 is also following the same footsteps after Boris Johnson sent a high alert against the covid situation but abstained from imposing any additional constraints during his speech on Monday.

US futures are currently eyeing a similar performance for Wall Street, raising optimism that the NASDAQ 100 and S&P 500 could maintain a foothold around their 100-day simple moving average (SMAs) once again, while the Dow Jones could pivot near the 200-day SMA.

Antipodeans outperform

FX markets enjoyed some recovery as well, but excluding the steep rally in the Turkish lira, which cheered Erdogan’s FX rescue plan, volatility remains relatively muted elsewhere.

The risk-sensitive antipodean currencies are mildly outperforming their major counterparts, with aussie/dollar pushing for a close above the 20-day SMA and the 0.7130 level as iron ore prices strengthened and the RBA meeting minutes mentioned the case for a QE termination in February. Kiwi/dollar still has some distance to reach that resistance line, though it has already fully reversed yesterday’s pullback, likely capitalizing on news that New Zealand will reduce the booster gap wait from six months to four.

In other commodity currencies, the loonie could not capitalize on stronger-than-expected retail sales data for October. Perhaps the stats are outdated and what matters most for investors is whether the Bank of Canada will raise its prospects for higher interest rates early next year. Dollar/loonie was last seen marginally lower at 1.2920.

Euro extends rebound but still heavy

As regards the European currencies, although in positive territory, euro/dollar and pound/dollar are fighting hard to stretch above the 20-day SMA at 1.1285 and 1.3271 respectively, weighted by the cloudy covid conditions in the UK and the Eurozone. Rising hopes that the Democrats could accept some adjustments in Biden’s Build Back Better $2 trillion package in order to find a compromise with Senator Manchin is also holding back the already-anemic bullish movement.

Nevertheless, the slight improvement in the euro is enough to keep the dollar index under pressure for the second consecutive day at 96.33.

Gold is changing hands marginally higher in the day on the back of a weaker dollar, though it is still lacking the power to exit its range bound trading above the $1,800/oz ceiling.

President Biden will hit the wires later in the day, briefing investors about how the US is planning to tackle the mounting infection cases.