FX.co ★ US stock market drops due to Omicron

The main US stock indices fell at the close on Thursday. The Dow Jones lost 0.5%, the NASDAQ Composite tumbled by 2.5%, and the S&P 500 index fell by 1.4%.

Asian stock markets also fell on Friday morning. Japan's stock indices declined by 2%, while in China, they lost 0.2%.

As for the commodity market, oil is trading at its highs despite a strong drop in the US stock market. Brent Crude is estimated at $84.40 per barrel.

The Russian stock market dropped considerably yesterday, the RTS and MICEX indices decreased by 6% and -3.8% respectively. The drop in the stock market was also facilitated by a noticeable decline in the ruble. It shed 3 rubles against the euro 3 yesterday, approaching 87.40.

The S&P 500 index is trading at 4,660. It is likely to remain in the range of 4,630 – 4,690.

One of the main reasons for the bearish sentiment in the US stock market is the rapid spread of the Omicron strain.

Countries around the world register the highest number of cases, near 3.2 million cases per day. In the US, there were 806,000 cases yesterday, France posted 305,000 cases, and India reported 250,000 cases. Spain and Italy posted 160,000 and 180,000 respectively. However, there are some reasons for optimism. In the UK, the omicron wave began earlier. Yesterday, there was a decrease to 110,000 cases. The highest level of 218,000 cases was recorded only 10 days ago. Besides, mortality remains low relative to the pre-Omicron levels of October and November.

Yesterday, the US unveiled its initial jobless claims report. Unemployment remained at a low of 230,0000, long-term unemployment fell to 1.56 million from 1.75 million a week earlier. It is certainly bullish for the market.

The second most important indicator for inflation, the PPI index, has significantly decreased to 0.2% per month from +1%. Core inflation decreased to 0.5% from 0.9%. Importantly, core inflation strips out food and energy prices.

Today, market participants are anticipating an important economic report on retail sales for December. The reading is expected to total 0.2%.

According to the new vice-chair of the Fed, Lael Brainard, combating high inflation is the central bank's top priority for the regulator. "We are taking actions ... that I have confidence will be bringing inflation down, while continuing to allow the labor market to return to full strength over time. Fighting inflation is our most important task."

The US dollar index is trading at 94.70. It is likely to stay in the range of 94.40 - 95.00. The US dollar has weakened significantly in recent days by more than 1% after breaking down the monthly range. The yen and euro have asserted strength against the US dollar. analysts are sure they will continue their upward movement. The US dollar is likely to decline for some time due to the Fed's soft stance on the key rate hike.

The USD/CAD pair is trading at 1.2506. It is projected to remain in the range of 1.2450 - 1.2560. The pair is extending losses because of a drop in the US dollar and high oil prices.

Conclusion. The US stock market lost momentum, entering the correction phase. It is likely to drop to new lows.