With the Omicron coronavirus variant uncertainty looming over the financial markets, all eyes are on global central banks as they are expected to release their policy decisions. Will they taper stimulus sooner than expected or not?
The Inflation Dilemma
Global central banks’ policies are far from in harmony as the COVID-19 Omicron variant further complicates an uneven global recovery and high inflation.
Around 20 central banks including the U.S. Fed, the European Central Bank, the Bank of England, and the Bank of Japan will present their policy decisions on future interest rates this week. Banks are expected to act at different speeds, as each of the central banks will respond differently to the pandemic and the varying growth and inflation outlooks.
Central banks are in the spotlight as if they decide to move fast to contain inflation, they could hurt the developing economic recovery. However, if they wait too long, they may have to turn to aggressive interest rates increases in the future which could potentially cause a recession.
The U.S. dollar climbed to a one-week high against other major fiat currencies today, Tuesday. The currency was boosted by expectations that the Fed will start tapering its bond buying stimulus sooner than expected and will increase interest rates earlier in 2022. The dollar was also supported by increasing “safe haven” demand caused by the Omicron coronavirus variant uncertainty.
Gold prices recorded minor losses on Tuesday morning as investors are expecting decisions from major central banks meetings. Silver and palladium were also down.
Crude oil fell on Tuesday as investors worry about demand declining after tightened restrictions are being imposed by governments in Europe and Asia due to the spread of the Omicron coronavirus variant and an increase in cases.
At the same time, the OPEC+ increased its world oil demand forecast for the first three months of 2022 and didn’t change its timeline for a return to pre-pandemic levels of oil consumption. They believe the Omicron variant’s impact will be short and mild.
Meanwhile, oil supply is expected to rise. According to a monthly forecast from the U.S. EIA, the oil output from the largest U.S. shale basin is expected to increase to record levels in January.
Bitcoin steadied after experiencing a major drop due to expectations of central banks reducing their stimulus – the liquidity of which lifted the crypto markets. Other digital assets such as Ether and Litecoin also recorded losses. Bitcoin fell more than 30% from its $69,000 all-time high on November 10, but it is still up about 60% so far in 2021. It’s trading around $47,000 at the time of writing.
What to Watch out for this Week:
GB Unemployment Rate
GB Claimant Count Change
GB Inflation Rate YoY
China House Price Index YoY
China Industrial Production YoY