Week Ahead: Omicron, OPEC+, and NFP to Start the New Year

Happy New Year! As we change the calendars from 2021 to 2022, many of the same issues will continue, including rising inflation and coronavirus. Although we have some inflation data this week (several CPI releases and US Average Hourly Revenues), the focus is on the virus. Omicron is on everyone’s tongue as the number of new daily cases rises to record highs in many countries. How will this affect markets going forward? This is a question that OPEC will have to answer when members meet on Tuesday to decide whether they should increase their oil supply. In addition, the start of a new month means payroll data for the U.S. and Canada on Friday. Traders will look to see if Omicron has affected the data.

Omicron

Record numbers of new daily cases of coronavirus continue to flow in from all over the world, mainly due to the Omicron variant. The United States broke the record with 484,377 new cases on Wednesday last week. The UK and many European countries are also reporting record numbers of new daily cases. What do the markets think? Well, the S&P 500 always made new highs, again, last week. Do retailers realize that this is something people will only have to live with? Or is the purchase due to “window dressing” so that the funds can improve their returns? In addition, higher inflation does not seem to be going away any time soon, and the rise in new cases could increase inflation. If more people are sick, even slightly sick, they will have to stay home from work for at least a few days. Will factory workers, long haulers, truckers, and be able to get supplies and products where they need to be on time? The Omicron variant may create higher inflation if it is not contained in the next few months.

OPEC +

OPEC + is meeting on Tuesday this week. The committee must decide whether to continue to increase the oil supply by 400,000 bpd or pause due to a lack of demand for the Omicron variant. Expectations are that OPEC + will increase production. Chances are that demand will increase later in the year as fears of coronavirus decrease. In addition, counties that released oil from their reserves in December to offset higher prices will soon have to start stockpiling again. These countries include the United States, the United Kingdom, China, and South Korea, among others. (Prices are slipping higher into the meeting again.) Therefore, demand is expected to be there for the increase in production. Make sure OPEC stays with the script.

Economic data

Although there are no major central bank meetings to begin the new year, the FOMC will release Minutes of its December meeting. Will this change the view that traders have about a Federal Reserve stock? As mentioned, there are some inflation data this week that includes CPI from Turkey, Germany and EU. In addition, this week there will be data on manufacturing and employment that have inflationary components. These include global PMI of Production and Service and U.S. Average Hourly Income. See also job data, as reports will be published from Germany, Canada and the United States. Other important economic data are as follows:

Monday

• European and US Production PMI Final (DEC)
• Turkey: Inflation rate (DEC)
• United States: Construction Expenditure (NOV)

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• OPEC meeting
• “Basket of the World” (DEC) PMI production
• China: Caixin Manufacturing PMI (DEC)
• Germany: Retail (NOV)
• Germany: Unemployment Change (DEC)
• UK: BOE Consumer Credit (NOV)
• UK: Mortgage Loan (NOV)
• Canada: PPI (NOV)
• United States: ISM Manufacturing PMI (DEC)

Wednesday

• European and US Service PMI Final (DEC)
• Australia: RBA Chart Pack
• Japan: Consumer Confidence (DEC)
• United States: ADP Employment Change (DEC)
• Canada: New Housing Price Index (NOV)
• Canada: Building Licenses (NOV)
• United States: FOMC Protocol
• Raw Stocks

Thursday

• “Rest of World” Services PMI Final (DEC)
• China: Caixin Services PMI (DEC)
• Germany: Factory Orders (NOV)
• EU: Construction PMI (DEC)
• EU: PPI (NOV)
• Germany: CPI Prel (DEC)
• Canada: Trade Balance (NOV)
• United States: Trade Balance (NOV)
• United States: ISM Non-Manufacturing PMI (DEC)
• United States: Factory Orders (NOV)

Friday

• Japan: Household Expenditure (NOV)
• Japan: Tokyo CPI (DEC)
• Germany: Trade Balance (NOV)
• UK: Halifax House Price Index (dec)
• UK: Construction PMI (DEC)
• EU: CPI Flash (DEC)
• US: Retail Sale (NOV)
• EU: Economic Sense (DDEC)
• Mexico: CPI (DEC)
• Canada: Employment Change (DEC)
• United States: Non-Farm Wages (DEC)
• Canada: Ivey PMI Sa (DEC)

Diagram of the Week: S&P 500 Daily

Source: Tradingview, Stone X

No matter how many times the S&P 500 tried to move lower last year, buyers came in to buy the dip. The big benchmark index moved higher throughout the year, continuing the trend that began in March 2020. Traders expected a price to fall from the ascending wedge, however it did not! Will this trend change in 2020, especially if inflation fears continue to creep into the markets? The S&P 500 set new highs, again, last week. (The futures contract is shown because it captures overnight trading data). Resistance is at the 127.2% Fibonacci extension from the highs of December 17 to the lows of December 20, near 4804. Above that, resistance is at the top, upward sloping trend of the wedge near 4860 and then the 161.8% Fibonacci extension of the. the aforementioned time frame near 4881. However, note that the RSI diverges with price, an indication that the index may be ready for a pullback. Support returned to previous highs near 4743.25, the downward downward trend of the wedge near 4575 and the December 20 lows at 4520.25.

Omicron will be on everyone’s minds this week as retailers digest the fast-growing, yet gentle, variant. Will the virus inject a new attack of fear into the markets, or will traders throw caution to the wind and continue with the risky issue? In addition, OPEC + is meeting this week as the price of WTI crude oil approaches $ 77. Will it increase production again?

Happy New Year’s weekend and please always remember to wash your hands!