S&P500
The US market is at the highs of the year.
The main US indices showed strong gains before Christmas. They closed before the Christmas holiday near the highs of the year. The Dow added 0.6%, the NASDAQ rose by 0.8% and the S&P500 gained 0.6%.
Asian markets were moderately down on Monday morning. Both Japan's and China's indices lost 0.3%
Futures on the S&P500 index also dropped by 0.1% on Monday.
More than 385K new global cases were reported yesterday. In Europe and the US, the number of new infections decreased significantly. However, this could be due to the holidays and the usual drop in statistics over the weekend. For example, the UK has not yet reported holiday data and we cannot see the dynamics. In India, authorities have imposed a curfew to reduce the spread of Covid-19. The US reported +96K new infections.
Brent is trading near the December highs of $75.70. Crude oil prices could continue their rally, especially if the stock market continues to rise in advance of the year-end close.
The gas crisis in Europe continues unabated. There is a debate between Gazprom and the EU. European media reports that Gazprom has not pumped gas through the Poland-bound pipeline for six days. Gazprom said over the weekend that there were no bids from customers. It is likely that European gas buyers from Gazprom, having selected their contracted volumes for December and 2021, want to wait until the beginning of 2022, using the reserves in the gas storage facilities, and then buy gas under contract from Gazprom without increasing the contracted volumes, as the new contract prices are significantly higher than before. Gas storage levels in Germany are now lower than in previous years, but still around 50 percent of the total storage capacity. There is still no physical shortage of gas. On Friday, natural gas was trading at $1,260 on the free market in Europe, while during the week it was up to $2,000 per thousand cubic meters.
The S&P500 index is trading at 4,726 within the 4,690 – 4,750 trading range.
As it was mentioned before, the market is back to the highs of the year before Christmas. On Monday, the US market showed a growth of 25% since the beginning of 2021, following a gain of 16% in 2020. Major funds and banks do not expect the US market to maintain such high growth rates next year. Most likely, the US stock market will either grow much less or even close next year with negative growth. The reason is the Fed's turnaround towards a tightening of policy. This is caused by high inflation in the US and the necessity to fight it. Essentially, the US authorities and the Fed injected huge amounts of money into the economy to pull the economy out of a huge recession into a pandemic. This amount of money has not only boosted demand, production, and employment but has also caused prices to rise sharply. This would entail a rise in the cost of money (interest on loans), a slowdown in economic growth, and possibly a fall in the stock markets.
The Biden administration is considering restricting flights over the New Year holidays as Omicron threatens to cause a collapse of the US medical system. A decision is likely to be made in the coming days based on new data on illnesses in the US. There will be no big news on the economy in the last week of the year, the market will receive employment data for the week on Thursday.
USDX is trading at 96.10 within the 95.80 - 96.40 trading range. The dollar index is holding near the lower end of the 95.80-96.80 medium-term range, but the range boundaries have not been crossed. Investors and traders should be cautious before active trading begins in January. There could be sharp, unwarranted rate hikes this week.
USD/CAD is trading at 1.2820 within the 1.2760 - 1.2880 trading range. The pair is under pressure due to rising oil. However, the fall is still corrective and the general upward trend has not been broken.
The markets are still calm. The US market could see both a new rise as well as a corrective decline.