US indices recorded a strong rebound yesterday on expectation that omicron is more transmissible but less deadly, but the volatility remains high. That’s a sign that the stress in the market is not over just yet, because the root cause of the latest market selloff is not only omicron, but also the fear of seeing the markets left with less Federal Reserve (Fed) support due to Fed’s willingness to address the high inflation issue rather than providing support to the labour market recovery.

The major event of the day is the US jobs data, but is the data still important?

Elsewhere, Apple falls on news that the iPhone13 demand is weaker-than-expected. Grab’s first day in Nasdaq was a flop and Chinese tech stocks will certainly have a bad day in the US as well, as there is news that they could be delisted from stock exchanges.

The strong rebound we saw in US equity futures ended up giving way to a decent sell-off on Wednesday trading session; the S&P500 recorded its worst back-to-back sell-off since October 2020 and it may not be over.

The US equity futures are again in the positive at the time of writing, but the gains are hardly interpreted as a recovery; they are rather the result of a rising volatility. The risk sentiment is sour.

Now one place which could give hope for a slowdown in inflation, and a slower market selloff is oil, as the prices are under the pressure of a couple of factors.

OPEC meets today; the expectations have been as volatile as the market action in oil. The latest news suggest that OPEC is increasingly inclined to scrap its plan to raise output for January.

With the Fed pulling away support, we see the shining stars of the cheap-liquidity market falling from grace. AMC entertainment and GameStop tanked, while chipmakers and electric car makers took a heavy hit.

Traditional safe haven gold is doing quite poorly nowadays, while Bitcoin is stable near the $56K mark, but the risks are tilted to the downside on the global loss of risk appetite.

So, I am thinking, but just thinking whether the US dollar will again be the place to park until the dust settles.

Inflation is ‘not transitory’ said the Federal Reserve (Fed) Chair Jerome Powell at his testimony before the Senate yesterday, and the stock markets took the ‘no transitory’ phrase as a slap in the face. Most equities dived yesterday, yet the US equity futures rebounded as fast as they dived in the overnight trading session. Nasdaq futures are up by 1.30% at the time of recording.

But be careful, this is probably not a proper recovery, it is simply the volatility rising!

And what about omicron? Well, Jerome Powell didn’t seem too concerned about omicron, or the near-term impact of the virus on the economy. The problem is, Jerome Powell may not be concerned with the new omicron strain, but investors are, and watching the Fed support fade away is certainly not the best news and the news doesn’t come at the ideal time.

And Bitcoin in all this? The inflation hedging properties of Bitcoin are not granted, really, and the fact that the Fed would pull away the cheap liquidity could actually hit the appetite in cryptocurrencies. This is what Mike Novogratz, who is a billionaire crypto investor said following Jerome Powell’s comments yesterday.

And, Christine? Well, inflation in the Eurozone jumped from 4.1% to 4.9% in November, versus the expectation of 4.5% by analysts. That’s a big, big number for the eurozone. It doesn’t look transitory, and it seems to be accelerating as well. Therefore, I am increasingly convinced that we will soon see Christine Lagarde raising the white flag soon and announcing that, finally, inflation is not all that transitory.

Omicron comes as an early Xmas present to the central bankers, the early Federal Reserve (Fed) rate hike expectations evaporate and equities gain. Yet, the appetite is certainly brittle. Jerome Powell will start his two-day testimony today and he will likely sound dovish, as he already warned about the downside risks that omicron brings on the table.

Among biggest gainers of the omicron news are metaverse stocks, and among biggest losers are energy stocks, especially now that the US-Iran nuclear talks give encouraging signs of an eventual deal between the two countries.

Omicron wreaked havoc in the markets on Friday, sending European indices near 5% lower into Friday’s close. The selloff in the US was a bit less severe, but this is obviously not the performance we were expecting on Black Friday.

And weekend news were mixed.

Of course, the governments are quite experienced by now, so none was keen to wait and see we what would happen next. The reaction came fast, and included the well-known travel restriction measures, halting flights, restoring the entry measures, the tests, the isolation and so. The latter is bad news for the economic activity.

But the good news is, the WHO said that the symptoms of the new omicron were rather ‘mild’ so far. Therefore, the financial implications could be less bad than what everyone first though.

Market action on Monday is not as bad as Friday. European stocks and US equity futures are up, but the risk appetite is vulnerable to news.

We now have a new Covid variant that’s ‘very’ different from the ones we knew so far, a rising inflation, and a market bubble.

So inevitably, the market mood is souring, as investors don’t know whether the equities could survive to another economic hit with less support from the central banks, as central banks would have to deal with a dual fight that’s intensifying on both fronts: inflation is rising, and Covid news are getting worrisome. The problem is that they can’t use the same tools to fight back inflation and the economic slowdown. And the choice will be difficult.

The only encouraging news is the easing oil prices, which could tame the inflationary pressures and give more time to the central banks before pulling back support.

The latest news from Adidas is shaking the crypto headlines since Adidas Originals tweeted that they partner up with Coinbase to accept payments in cryptocurrencies. This is actually a proof of an increased adoption of the cryptocurrencies by traditional companies.

If this is ‘probably nothing’, the SandBox partnership is something big, as the NFTs are about to become the next advertisement tool and the potential is huge because the digital ads market is huge!

In traditional market news, the market mood is rather ok-ish after the FOMC minutes, although Federal Reserve (Fed) minutes showed that the US policymakers are now considering a faster QE taper and an earlier interest rate hike if inflation continues running higher.

The US 2-year yield continues pushing higher on rising expectation of a tighter Fed policy, but appetite in US equities is not much hit. Nasdaq, which is supposed to be the most sensitive to higher rates closed yesterday’s session higher than the other major US indices, while gold slipped below the $1800 per ounce as the rising yields increase the opportunity cost of holding the non-interest-bearing gold, at a time when the risk rally promises bigger returns to investors who invest in, well, risky assets.

It’s Joe Biden against the oil bulls, and oil bulls seem to be gaining the upper hand as oil prices rebounded the day Joe Biden announced to release not 35 but 50 million barrels from the US strategic reserves.

Such news doesn’t necessarily scare OPEC, but it probably frustrates them. The expectation is that they will hit back at their meeting next week, and their decision will have an impact longer than a couple of days or weeks. This is probably why we are seeing the oil bulls coming back to the market.

Overall, the market sentiment is mixed. Nasdaq is down from an all-time high, as the US short term yields continue pushing higher. The bond traders have been cutting their projections on US inflation as they expect the new Fed Chair Jerome Powell to move aggressively to slow rising consumer prices.

In other macro news, the Reserve Bank of New Zealand (RBNZ) rose its policy rate by another 25bp to 0.75% at today’s meeting as expected, and the lira further got hammered by prospects of lower interest rates.

In Europe, yesterday’s PMI figures showed price pressures continued to rise for business, but the market continues pricing in a dovish ECB. At this point, I am wondering whether the dovishness in the euro is overdone, as Christine Lagarde will likely start facing some opposition to her ultra-dovish stance if inflation in the Eurozone doesn’t ease magically in the coming months. And magic is not something the Germans rely on.

El Salvador now plans to build a Bitcoin city which would be powered by volcano, but appetite in Bitcoin remains limited.

In the traditional markets, the week kicks off on a mixed note in Asia, but the US futures are in the green at the start of what will be a short trading week in the US. Based on the historical data, the Thanksgiving week is a strong week for the US equities; there is a two-thirds chance that we will see the US stocks up on the day before and after Thanksgiving.

Zoom to release earnings and expectations are strong despite bearish price action.

On the policy front, Joe Biden’s other $2 trillion worth of spending proposal just passed the House on Friday. It is now headed to the Senate and will probably sit there for a while, as the US politicians will first need to find a solution to their debt ceiling problem, before adding another $2 trillion debt on top of it. The US short term yields continue pushing higher, and the upside potential is high.

And on the Fed front, we are still waiting for Joe Biden to decide on who will be the next Fed Chair. But again, bringing the most dovish of the doves wouldn’t guarantee a longer period of zero rates in the US.

Nor elsewhere, the Reserve Bank of New Zealand (RBNZ) is expected hike the interest rate this week, and the Bank of England (BoE) will likely hike its rate in December.