Volatile trade continues

Stock markets are bouncing back on Tuesday despite there being little of note to trigger the sentiment u-turn as whipsaw price action continues ahead of the holiday season.

In the same way that we shouldn’t get too carried away with yesterday’s sell-off which was likely caused by low liquidity and some pre-holiday season risk reduction, we shouldn’t read too much into today’s rebound. These are illiquid markets and omicron continues to be a huge cloud of uncertainty over them.

Europe is seeing sweeping restrictions being imposed, with plenty more expected to come after Christmas as countries balance protecting the health service with gathering data on the new variant and keeping the public onside. The difficulty is that omicron is spreading so rapidly that everyday matters and inaction could come with severe consequences shortly after.

We’re seeing a range of measures across Europe, with some countries trying to preserve the freedoms of the double vaccinated and those that have received the booster while imposing restrictions on the unvaccinated. But it seems to be heading in one direction and the next week could see much harsher restrictions imposed for all while boosters continue to be rolled out.

The UK has announced new support measures for hospitality in the wake of its light touch restrictions that the CBI has argued is “lockdown by stealth” given the impact they will have on the industry at a critical time of year. With the government not ruling out further restrictions, or a circuit breaker it would appear, calls for more support and a return of the furlough scheme will only get louder.

Erdoganomics has lira trading like a cryptocurrency

Illiquid markets and uncertainty may well make for volatile markets but throw a healthy serving of Erdoganomics into the mix and the result is explosive. The last 24 hours makes trading in the lira the last few months look tame and it’s been served up by the same brain that remains convinced that high-interest rates stoke inflation.

Five failed currency market interventions and a 50% percent hike in the minimum wage next year shockingly did little to convince traders that inflation will abate and that economic policy is on a sensible and sustainable path. So President Erdogan has unleashed his next weapon, a series of measures aimed at protecting lira deposits at an unknown expense with little detail on how such a complex policy will be enacted.

A desperate act that has, in these illiquid markets, brought some welcome relief for the lira which rebounded strongly. The dollar is currently around 30% off yesterday’s highs against the lira but still about 75% up from the start of the year. It’s more like watching bitcoin than a national currency. I’m not convinced it will be enough to bring any kind of stability to the currency. We’ve seen the government attempt rate hikes by the back door before and it always ends the same way. They’ve had some early luck, but will it last?

Bitcoin finding a bottom?

Bitcoin is enjoying a bit of a recovery today after once again seeing support around USD 45,500 on Monday. It’s been an unusual period of stability for the cryptocurrency as we head into the end of the year which may signal a bottom is forming since falling more than 30% from its peak. It’s been some year for cryptocurrencies; it will be interesting to see what 2022 has in store.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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