Equities pulled back on Monday on the combined fear of COVID-19 and the FOMC. On the COVID front, the UK confirmed its first death from the Omicron variant raising the stakes in terms of how badly the new strain may impact the global economy. On the FOMC front, traders are trying to handicap when the first interest rate hike will come and we think the right answer is sooner rather than later.

As it stands, there is a better than 50% chance the first hike will come by May. If the pace of inflation doesn?t slow over the next month or so the first hike could come as early as March. Trading on Tuesday will be greatly influenced by the Producer Price Index which is expected to moderate on a month-to-month basis but to remain high versus last year and well above the Fed?s 2.0% target.