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Another week of Covid worries ahead

As expected, last week’s news headlines and markets movements were dominated by developments concerning the Omicron variant of Covid. Until the full impact of the variant and the efficacy of vaccines against it are fully understood, the markets will remain on tenterhooks with sentiment skewed towards the negative. It was notable, though, as the week wore on, that market sensitivity seemed to decline as the focus turned towards Friday’s Nonfarm payroll figure. This change in emphasis was understandable, with numerous Federal Reserve spokespeople, including Jerome Powell, commenting that inflation was now their top priority. When the figure came in, the headline figure initially disappointed despite some substantial upward revisions to the previous month’s numbers, but the market soon switched focus and concentrated on the high level of job openings.

Risk aversion is sure to stay the top priority of traders and investors as we head towards the end of the year, especially as annual bonuses start to be calculated. This should ensure a relatively quiet week ahead, famous last words, as profits begin to be protected. Certainly, central bankers will not be upsetting the apple cart by speeches, as most are now in blackout periods ahead of their meetings next week. There are, however, some significant data sets scheduled for release, including the latest inflation figures from the US and the October estimate for Gross Domestic Product in the UK. As with last week, the markets will be watching out for bulletinson the pernicious effects of the Omicron variant and the effectiveness of the current vaccines against it. In the background, geopolitical issues will continue to play out, and half an eye will be kept on them, particularly the ongoing tensions between Russia and the West over Ukraine.


Sterling eased during the week as the prospect of an interest rise by the Bank of England after their next meeting on 16th December dissipated. According to the interest rate futures market, the chances are now rated no better than 30%,compared to 75% two weeks ago before the latest pandemic scare. On Friday, Michael Saunders from the Monetary Policy Committee said the variant was a key consideration for interest rates, which further dampened expectations and pressured sterling, particularly against the dollar. Against the euro, where the chances of an interest rate rise are less, sterling’s fall has been less dramatic and as much a by-product of the euro’s move against the dollar.

The week ahead has a barren data docket, apart from second-tier data, until Friday, when a slew of data is released. Friday’s figures include October’s Gross Domestic Product and Manufacturing and Industrial Production.


The euro slowly edged lower against the dollar last week as news about the Omicron variant and the increasing number of lockdowns across Europe spread. Against sterling, it has gained slightly as traders reassess the likelihood of the relative central banks hiking rates. With Christine Lagarde still refusing to budge from her stance of not worrying about inflation, the euro is still vulnerable to the dollar, and these dynamics are unlikely to change in the near future. With the European Central Bank’s speech blackout period not starting till Thursday, council members will have some opportunities to air their views, although none a scheduled to speak as we write.

Data wise, Eurostat will release third-quarterEmployment and a revised third-quarter Gross Domestic Product tomorrow whilst Germany publishes its Industrial Output. On Thursday, Germany reports its Trade Balance and the week closes with the German Consumer Price Index.


A week of surprises closed with a publication of a worse than expected Nonfarm Payroll number that was less than half the forecast figure. After a week of Federal Reserve members openly worrying that the current level of inflation had increased the anticipation that the rate of tapering would rise, this data gave the market food for thought. However, market commentators quickly pointed out that demand for workers continues to outstrip supply, evidenced by more than 10 million job vacancies. The imbalance in the jobs market could itself indeed cause wage inflation.

This week, the market will get another chance to assess inflation ahead of next week’s Federal Reserve rate-setting meeting when the November Consumer Price Index (CPI) is released on Friday. Before that, Consumer Credit for October is published tomorrow, Wednesday Job Openings (JOLTS) are published, and the weekly jobless claims are published on Thursday. The week closes out with the University of Michigan Sentiment Surveys late Friday afternoon.


The Swedish krona weakened further against most G10 and is now trading at levels last seen in October 2020. As loyal readers will remember, December is normally speaking, a Krona positive month due to tax planning and capital inflow to the OMX30. Most market participants expect this December to be no different. This week sees no important data releases.

Over in Norway, the krone had a quiet week, and this week sees no important data releases but for the inflation figure out on Friday. This will be the last important set of data that could potentially influence Norges Bank Governor Olsen ahead of his rate decision on 16th December. The market is widely expecting Governor Olsen to raise interest rates, and a low inflation figure, below the expected 3.5%, could potentially stir up some rumours that he may scale back on his hike cycle.

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