Bitcoin Back Above 50K

Futures in the United States and Europe are up after the Dow Jones Industrial Average jumped 646 points as investors reassess risks associated with the Omicron variant while accounting for a more hawkish Fed. Looking at new cases, it does not appear that the Omicron variant is particularly severe, as the number of hospitalistions did not significantly ramp up, as South African authorities had previously indicated. As a result, investors’ appetite for riskier assets returned, fuelling the rise in stock market indices.

In yesterday’s session, the Dow Jones Industrial Average rose 1.87%, while the S&P 500 index jumped 1.17%. The Nasdaq, the tech-savvy index, surged 0.93% while the Russell 2000 hopped 2.05%.

Today, investors will be paying close attention to economic data from Germany, which is important because it is a key driver for European stock markets because Germany is the region’s largest economy and any significant drop in activity there could trigger waves of volatility in other European countries as well.

Cryptocurrencies

Investors should understand that there is a clear positive correlation between broader stock markets and crypto markets, as evidenced by the price of digital coins over the last few days. Cryptocurrency prices fell in tandem with stock market indices. This occurred despite the fact that cryptocurrencies are regarded as a potential alternative to gold and a hedge against inflation. As a result, the price of Bitcoin fell below the critical $50,000 mark. However, since then, investor sentiment has improved, and major stock market indices have recovered. Similarly, the price of Bitcoin has also been able to surpass $50,000, which is very encouraging for the blockchain space as we approach the end of 2021.

Stock Market

The catalyst for positive stock price action is easing concerns about the Omicron variant, which has been creating chaos in stock markets around the world in recent sessions. Previously, authorities were concerned about the new variant’s high number of mutations, fearing it would be more contagious and deadly. As a result, governments tightened their restrictions and prohibited travel from certain countries where cases of the new strain were more prevalent. However, based on the symptoms of the Omicron variant, it does not appear that they are overly serious. Thus, sentiment for riskier assets turned positive again and stocks in affected sectors, such as travel, saw a retracement in stock prices.

Although it is still too early to predict what the Omicron variant will mean for global economic recovery, investors are now more concerned with what the Fed’s faster tapering of bond purchases means for the American economy.

Because inflation is on the rise and is expected to reach its highest level in decades, Fed officials have decided to reduce market liquidity. However, the situation has become more complicated because the number of jobs added in November was less than half of what was expected, and thus the Fed may have to reconsider their strategy of faster tapering in order to avoid a market meltdown by acting sooner than necessary.

Oil

Oil prices have also started to return to their upward trajectory as concerns regarding the Omicron variant subside. Because cases of the new strain seem to be mild, the likelihood of stricter controls and the execution of lockdowns seem to be minimal. As a result, the future outlook for oil demand has returned to being positive, while oil supply remains tight as economies recuperate from the rock bottom situation witnessed in 2020. The argument for a strong future outlook for oil demand is supported by Saudi Arabia’s, the biggest exporter of crude oil, decision to raise prices for crude oil and OPEC+’s judgment to stick to its plan of pumping 400,000 barrels a day into the markets in January as well.

Meanwhile, negotiations between the US and Iran have stalled once more, implying that markets should not expect Iran to pump any more oil anytime soon. Hence, in the short term, investors should very likely expect oil prices to keep on rising unless we see a sudden uptick in coronavirus cases.

Gold

In yesterday’s session, treasury yields rose after investors purchased the dip in stock markets. As a result, yields on 10-year treasury notes jumped to 1.44%, while yields on 30-year treasury notes hopped to 1.77%. The U.S. dollar also surged against a basket of major currencies. As treasury yields and the U.S. dollar move inversely to gold prices, the price of the precious metal dropped.

Asian Pacific Markets

Because of the slowdown in economic growth in China, policymakers are in view of pumping liquidity into markets by supporting the country’s real estate market, which has taken a significant hit because of the Evergrande debacle. Beijing is now considering easing restrictions on its property sector to fuel economic growth in 2022. Similarly, the People’s Bank of China will also reduce its minimum reserve requirement for banks by 0.5%, which is potentially going to inject $188 billion into the economy.

As of 12.18 a.m. EST, the Nikkei jumped 1.99% and the Shanghai index rose 0.12%. The Hang Seng index, in Hong Kong, hopped 1.46%. The ASX 200 index soared 1.02%, and the Seoul Kospi climbed 0.50%.