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The US market consolidates at the highs of the year.
The US market showed new highs for the year in the S&P500 index on Friday during the trading day, but declined by the close. At the end of the week the Dow was down 0.7%, the NASDAQ added 0.4% and the S&P500 dropped 0.1%.
Asian markets opened the week with moderate gains. China's indices rose 0.4%, while Japan's indices added 0.2%.
On Friday, oil continued to fall. Brent crude dropped by $2.5 to settle at $78.60 on Monday. The Japanese authorities has announced it will sell oil from its state reserves to curb rising petrol prices domestically.
The USA and Europe lead in the number of new cases of coronavirus. About 400K new global cases were reported yesterday. The US and Germany reported +100K and +60K new infections respectively. The fight against Covid-19 is getting tougher in Europe. QR codes have been introduced to confirm vaccinations. Austria will introduce compulsory vaccination in February.
The S&P 500 is trading at 4,698. It stays in the range of 4,660 – 4,720. For a week now, the market has been unable to choose a further direction. There is not enough buying activity for a rise, but the fall is not progressing either. A correction would be appropriate, as the market has moved up from the 50-day average by 4%.
Biden will soon decide who will be the chair of the Fed since February 2022, as Powell's term ends. Biden has hinted that he is likely to nominate Powell again to ensure continuity of the Fed's course. The second candidate is Lael Brainard. She is known for her stance in favour of a Fed rate hike. Powell, as can be seen, is inclined to keep Fed policy extremely soft, even in a situation of high inflation in the US.
Analysts report that the supply tensions in electronic components, which have lasted for at least a year, are finally beginning to subside. However, a fourth wave of Covid-19 can lead to a new supply crisis.
Reuters has published a survey of economists on the outlook for Fed policy and the US economy. Most economists now believe that the Fed will raise rates in Q4 2022. Previously, it was announced that the rate hike would not take place until 2023. Inflation is not expected to fall until autumn 2022 and US GDP is estimated to accelerate by 4.8% annually in Q4 this year after falling by 2% in Q3. In 2022 US GDP is forecast to grow at an annual rate of 3.9%. Although economists do not expect the Fed to raise rates before next September, almost two-thirds of those surveyed believe it would be appropriate to start raising rates earlier.
The United States celebrates Thanksgiving on November 25. So, there is a big data package coming out on Wednesday. Among the important ones are the consumer income/expenditure report and the new PCE inflation report.
The US dollar index is trading at 96.10. It is likely to remain in the range of 95.80-96.30. On Friday, the dollar showed a strong gain. The currency is still receiving support from high US inflation and investor confidence that the Fed cannot ignore high inflation for long and will have to accelerate rate hikes.
The USD/CAD pair is trading at 1.2640. It is likely to stay in the range of 1.2580 - 1.2680. The pair is rising on a stronger dollar and declining oil prices. When oil finds support and shows a strong rebound upwards, the pair will have a strong pullback.
Conclusion. Traders are waiting for the US market to rise. However, investors need to be extremely cautious, as big investors may sell stocks en masse before the long weekend.
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