In the week, shareholders will be waiting for information on the Omicron version and hyperinflation. Last week, market volatility was fueled by concerns about each of these causes.
The two are inextricably linked. Many people are concerned that a new wave of the coronavirus would cause a halt in consumer mobility and spending, affecting economic activity and company profitability. Vaccine developers and other researchers have yet to assess the scope of Omicron’s disease transmission, the severity of the illness produced by the mutation, and whether it is partially resistant to current vaccinations.
Despite these virus-related concerns, monetary authorities have indicated that they are prepared to reduce monetary policy stimulus that had kept the economy afloat for more than a year and a half throughout the epidemic. This comes as inflationary tendencies have proven more stubborn than initially anticipated, even though tighter monetary policy might alleviate rising costs.
The November Consumer Price Index (CPI) will be released by the Labor Department on Friday, providing investors with an updated look at the state of inflation later this week. Despite the Federal Reserve’s preference for the core personal consumption expenditures (PCE) index to measure inflation, the CPI has been an important data point in determining the magnitude of price rises affecting Main Street consumers.
The CPI for November is projected to be high once more. Economists on the consensus predict the CPI will grow 0.7 percent month over month in November, compared to 0.9 percent in October. This would be the 18th month in a row that the CPI has raised. The CPI is forecast to climb at a faster pace of 6.7 percent, up from 6.2 percent in October on a year-over-year basis.
In recent months, the CPI has risen across the board, as supply chain restrictions and labor shortages have impacted a wide range of industries, forcing many businesses to pass on more costs to their customers.
Recent increases in energy and commodity costs have also had a significant impact on the headline CPI, with fuel oil prices climbing 12.3% month over month in October and natural gas prices rising 6.6 percent in October, the most significant monthly increase since 2014.
“We’re in the midst of the third wave of suffering, and it has nothing to do with COVID. Last month’s October CPI data revealed a 2.5 percent increase in used vehicle costs, which added 10bp [basis points] to the 0.6 percent increase in new car prices. “In a note, Michelle Meyer, Bank of America’s top U.S. economist, wrote: “oared core CPI.” “Unfortunately, this might just be the start.”
“Aside from automobiles, we check for price increases in a variety of product categories, including household furniture, clothes, and recreational items,” she noted. “Supply chains continue to be hampered by bottlenecks, prompting several retailers to start Christmas sales earlier this year, in October. Given the seasonality, October prices were most likely skewed downward, whereas November prices should be skewed upward. Due to reduced inventory, retailers may have provided fewer discounts than in prior years.”
For investors, the current high levels of inflation signal that the Federal Reserve may need to raise interest rates quicker than previously predicted to reduce price increases. This week, FOMC members will be under a blackout period ahead of their December meeting, when many market players expect the central bank to decide to accelerate investment tapering inside the future.
Since the crisis’s apex last year, the Fed has bought $120 billion in agency home loan securities and U.S. Treasury bonds per month. The Fed agreed in November to cut its asset-purchase program by $15 billion per month.
Because of “an economy that is extremely robust and inflationary pressures that are very considerable,” Federal Reserve Chair Jerome Powell stated last week that the central bank will “finish up [its] purchases a few months early.” He also noted that it was perhaps “time to discard” the term “transitory” to characterize inflation. Other Fed members have also expressed support for speeding up the tapering process, citing the strengthening economy and increasing prices as reasons.
“At the Federal open market committee a month ago, the Fed announced the start of its Q.E. [quantitative easing] taper, and while they adjusted the phrasing somewhat, November’s statement still stated that strong inflation was projected to be primarily temporary.
“It is not immediately apparent that pricing pressures have risen much in recent weeks. More than anything, this shift in tone reflects Fed officials are finally acknowledging what we believed were apparent six months ago.”
Around 222,000 individuals applied for unemployment benefits last week:
Weekly unemployment claims increased after reaching a five-decade low the previous week. On the other hand, new claims were around pre-pandemic levels, indicating that the labor market is still improving.
The critical metrics from the print, as opposed to Bloomberg’s consensus estimates, are as follows: Initial unemployment claims were 222,000 for the week ending November 27, down from 240,000 expected and a revised 194,000 the week before.
Ongoing claims were 1.956 million for the week concluding November 20, compared to 2.003 million expected and 2.049 million the week before. The total number of employees constantly claiming unemployment benefits through standard state programs known as continuing claims decreased to a new low level of 1.956 million in March 2020.
As a one-time occurrence, many analysts saw last week’s downwardly revised 194,000 unemployment claims, which brought new claims significantly below their pre-pandemic 2019 weekly average of about 220,000. And this amount has been lowered considerably lower than the 199,000 claims announced last week.
“The overarching message remains the same: labor demand is high despite a labor deficit.” Indeed, the broader job market has been bogged down by worker shortages for months. Many others have remained on the sidelines due to lingering fears about the virus and a desire by many working-age people to find new jobs with greater flexibility, pay, and benefits.
As per Greg Staples, DWS Group head of limited income, Americas, the timeframe for the labor market to stabilize and return to pre-pandemic levels is “the main wildcard” for the economic recovery.
Right now, there’s a lot of discussion about what it will take in terms of wages to get workers back into the workforce. Whether it’s because they’ve built up funds, are concerned about child care, or are worried about COVID, there has been hesitancy. “During a media call on Wednesday, Staples stated.
“However, when companies are forced to boost pay over, say, the magic $15 per hour level, workers will be enticed back in, resulting in a more natural balance between employers and employees. Wages will level down, and some inflation expectations will subside.”
The following monthly employment report from the Labor Department, due out in November, will give further information on the labor market recovery, labor force participation, and wage growth. Non-farm payrolls are expected to increase by 546,000 in November, compared to 531,000 in October, according to consensus experts. The unemployment rate is expected to fall to 4.5 percent, while average hourly earnings will grow 5.0 percent over last year, up from 4.9 percent in October.
The survey period for the report was from the 12th of the month through the following week. That survey period corresponded with a steep reduction in weekly unemployment claims to below 200,000, which might be a positive omen for the monthly figures.
Among the most significant stocks, cryptos, and ETFs to watch are Bitcoin, GameStop, Costco, and SPY:
Over the weekend, Bitcoin took a battering, plummeting to a two-month low near 42,000 until rising back to over 49,000 ahead of the new trading week. As traders and investors speculate about the consequences of the Omicron variation, the selloff follows the ‘de-risking in other risky assets and a flight to safety.
When it comes to de-risking, the 2020 meme monster is unstoppable. After Wednesday’s closing bell, GameStop Inc. (GME) announces Q3 2021 results, with analysts expecting a loss of $0.52 per share on $1.29 billion in revenue. If fulfilled, earnings-per-share (EPS) will be somewhat higher than the $0.53 loss seen in the same previous year.
Following last week’s 23 percent drop in meme cousin AMC Entertainment Holdings Inc., the options market might go crazy ahead of the report, with the most aggressive negative bets of 2021.
(COST) has defied gravity so far in 2021, with a year-to-date return of 40%. (TGT) have been heavily traded for weeks, increasing the chances of a solid sell-the-news reaction when COST publishes fiscal Q1 2022 earnings on Thursday evening. Weekly relative strength indicators are approaching a reliable sell signal, indicating that technical readings are worsening into the news.
In Wednesday’s session, the SPDR S&P 500 Trust (SPY) found short-term support above the 50-day moving average and broke above the September high of 454 points.
Investors abandoned high-growth companies in favor of conservative choices, and TSLA had a rough week as well, losing more than 6%. The drop was likely a delayed reaction to CEO Elon Musk’s pessimistic Monday Tweet, in which he underlined supply chain concerns and warned, “I will present an updated product strategy on next earnings call.”
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