Dip buying short-lived

Sentiment turns south into the end of the week

Friday’s dip buying is not proving particularly lucrative for European investors as stocks have given back earlier gains to trade broadly flat on the day. US futures are a little lower ahead of the jobs report.

Given the seesaw price action over the last week, you’d be forgiven for thinking we’re due a day in the green and early in the day, that’s the way we were headed. But indices quickly turned south after the open and have gradually eaten away at early gains to trade flat on the day.

Investors are clearly still anxious about the Omicron variant for obvious reasons, despite anecdotal evidence suggesting symptoms are less severe than feared. Higher levels of transmission are a worry but ultimately it will come down to the effectiveness of vaccines, which is the overriding concern currently.

Heading into the weekend when we could get more information on the new strain, it’s natural that we’re seeing more caution. A slew of negative data releases over the course of the morning doesn’t help lift sentiment and may be behind the gradual reversal we’ve seen in European markets.

Jobs report could hasten taper and rate hike expectations

There may also be some hesitation ahead of the US jobs report which will come shortly before the bell on Wall Street. A strong jobs report will be great for the economy but piles further pressure on the Fed to tighten monetary policy and get domestic demand-driven inflation under control before more drastic action is needed.

It’s clear from comments this week by Chairman Jerome Powell and his colleagues that the plan has changed recently and they now intend to taper faster, raise rates sooner and of course, retire the use of the word transitory. But Omicron could complicate efforts further just as the economic data was starting to catch up. A strong report today leaves the Fed well and truly backed into a corner.

CBRT interventions as successful as its interest rate experiment

The CBRT is back in intervention mode, addressing “unhealthy price formations”. Based on the movements in the lira which remains marginally off its all-time lows, it would appear the central bank’s interventions are about as effective as its monetary policy experiment. The unconventional approach to managing the lira hasn’t been particularly effective in the past and there’s no reason to expect it to work out any better this time. Especially in the current global economic and inflationary environment.

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