FX.co ★ US stock market is boosting, however rising inflation still jeopardizing it

S&P500

US stock market is overly optimistic.

The major US indices showed huge gains on Tuesday, eliminating a continued correction. The Dow closed, adding 1.4%, the NASDAQ rose by 3%, and the S&P500 went up 2%.

On Wednesday morning, Asian stock markets ended their sessions with significant gains: Japan's indices increased by 1.4%, China's indices rose by 1.1%.

Energy. Oil added $2.5 yesterday, increased by $5 in two days, Brent is consolidating above $75. Oil benefits from both a strong US economy and a firm OPEC stance against a considerable increase in oil supplies to the market.

Global epidemiological situation. The fourth coronavirus wave is near its highs. Yesterday, 600,000 new COVID-19 cases were recorded globally. There were again over 100,000 new cases in the US yesterday. The UK and France recorded 107,000 cases. There were from 45,000 to 60,00 new cases in Germany yesterday.

S&P500 is trading at 4,686, the range is 4650 - 4710. Analysts attributed the sharp rise in the US market yesterday, up to 3% concerning the indexes, to reducing fears about the new COVID-19 variant Omicron. According to the initial data, Omicron is at least not more dangerous than the already known variants. Vaccination protects against not infection, but a severe form of the disease. Besides, effective drugs for coronavirus from Pfizer should be available in the US as early as this month, though they should be taken at the first stage of the disease. New York authorities are introducing mandatory vaccinations for employees of private companies. However, no new lockdowns are being discussed.There is a strict system of QR codes in Germany and Italy. No access to public transport is allowed without them. US oil inventories fell by 3 million barrels for the week, according to Oil Institute data.

The lower house of the US Congress passed a bill to raise the US national debt limit, overcoming Republican resistance. The fight for the national debt limit will now continue in the US Senate, where Democrats have a minimal advantage in the voting.

Biden and Putin spent two hours in talks by a secure channel yesterday. It is known that Biden urged Putin not to attack Ukraine. Otherwise, the US promises to introduce extremely severe economic measures against Russia.

Markets are showing strong optimism and are about to hit all-time highs. However, inflation is rising. Many businesses in the US are planning significant wage increases in 2022. It is a reaction to inflation. Besides, with a strong labor market, a great many Americans, at least 4 million, have quit in recent months, moving to higher-paying jobs. Evidently, this fact will further exert inflationary pressure. The inflation report for November is released this Friday. Besides, in a week, the Fed will inform the US citizens about its plans to fight inflation. It will likely be bad news for the market.

USDX is trading at 96.15, the range is 95.80 - 96.50. The dollar index is stable, unlike the stock market. The dollar will probably expect the US inflation report to be released and then the Fed's decisions to be taken in the new week.

USDCAD is trading at 1.2620, the range is 1.2560 - 1.2660. The pair again is unpredictable. After rising oil prices, the pair completely stopped increasing and has already fallen by more than 200 pips from the 3-day high.

Conclusion. Evidently, the US stock market is overly optimistic. However, stock prices are still very high, the market is highly overbought. Besides, in case of the Fed's categorical statements the market sentiment might change dramatically.