New covid variant (omicron) gave fear to the market the week before as there are a lot of uncertainty about the new strain. Dr. Fauci said friday 10 december that a test conducted of 42 individuals who where affected by the new strain, gave 1 servear hospitaliation, which indicate a percantage rate of 2,38%. with the numbers right now with the current strain of the virus, we have a hospitalization rate of 6,27% (calculated with 7-days average hospitalization and cases reported) this is much more servear than the current data from the omicron strain. So was the market overreacting? no and yes. First of all the data are just now starting to bring in some usefull information, but still more data is needed. the overall reason for the big drop was the ending tapering and the fear of high inflation data. Then what?
we got the CPI data and was red hot and the highest reading in many years.. but.. the market reacted by further upside since "the numbers was not as bad as expected"
next week we have FOMC, where the expectancy is that fed will move much faster with the tapering, and maby increase rates sooner next year than first anticipated
So what is this all about?
Classic macro 101 class.. right now this is all about credibility of the central bank. If they do not reach to the expected inflation level, then the credibility of the central bank is lost. (which is a bad thing) so why are the market still increasing since market project the future? Well this could all be a game of chicken - Who blinks first. The market does not anticipate that the feed will be agressive and have given them a pree taste of what could happpen, which we have seen with the big drop from 16.700 level. This is probably also the explanation of why the market incraesed this week. They are telling the feed that they are full of s***.
Next week:
I expect that the FOMC meating would be a non event, and that the market have priced in and reacted to the event. We would probably experience some choppy trading, and maby a last melt up before a bigger drop.
Break of 16.000 level would probably increase the propability of a drop to the 15.500 level, while a break of 16.750 would bring us to a new all time high before the year end to 17.000.
we got the CPI data and was red hot and the highest reading in many years.. but.. the market reacted by further upside since "the numbers was not as bad as expected"
next week we have FOMC, where the expectancy is that fed will move much faster with the tapering, and maby increase rates sooner next year than first anticipated
So what is this all about?
Classic macro 101 class.. right now this is all about credibility of the central bank. If they do not reach to the expected inflation level, then the credibility of the central bank is lost. (which is a bad thing) so why are the market still increasing since market project the future? Well this could all be a game of chicken - Who blinks first. The market does not anticipate that the feed will be agressive and have given them a pree taste of what could happpen, which we have seen with the big drop from 16.700 level. This is probably also the explanation of why the market incraesed this week. They are telling the feed that they are full of s***.
Next week:
I expect that the FOMC meating would be a non event, and that the market have priced in and reacted to the event. We would probably experience some choppy trading, and maby a last melt up before a bigger drop.
Break of 16.000 level would probably increase the propability of a drop to the 15.500 level, while a break of 16.750 would bring us to a new all time high before the year end to 17.000.