It didn’t take long for investors to go back to the buy-the-dip playbook. US stocks are only a few percentage points away from record highs on optimism the latest COVID variant won’t completely upend economic activity. Risk appetite was dealt an early blow on reports that Apple’s iPhone demand was waning before the peak holiday shopping season was over. The next couple of weeks will be key in assessing the impact of Omicron. So far, the first two Omicron cases in the US have one person with mild symptoms, while the other one has already recovered. The US already has 70.4% of the population vaccinated and if Omicron does not lead to more severe illness than Delta, we could only be looking at a minimal impact to the short-term outlook.
Q3 2021 hedge fund letters, conferences and more
Apple
An unexpected Apple Inc (NASDAQ:AAPL) warning sent shares of the iPhone maker down sharply as demand for its latest phone appears to be slowing. Apple shares fell 4.2% immediately after the Bloomberg report of weakening demand, which has yet to be confirmed by Apple. The gift of iPhone during the holidays appears to be losing momentum, but that might be in large part why many people bought it early to have the new phone to take pictures this holiday. Raymond James analyst Caso countered the weakening demand report, by noting “Our own checks haven’t uncovered significant changes thus far.” Apple is now down only 1%.
FX
It is no surprise that leverage funds are continuing increasing their dollar bets after Fed Chair Powell’s hawkish turn and some flight-to-safety into Treasuries. Demand is still very strong for Treasuries and that story won’t change given how desperate some investors are for yield. The dollar is slightly higher on the day as investors buy the stock market dip and as the Treasury yield curve continues to flatten.
Oil
OPEC+ did it again… surprising everyone with a decision to keep the 400,000 b/d hike for January. Sharp oil price movements saw WTI crude plunge to $62.43 before recovering the majority of the slide. The Saudis certainly know how to keep energy traders on edge and this OPEC+ surprise decision sent oil prices on a wild ride. The decision to move forward with the January production increase will alleviate some of the mounting political pressures that were growing. Energy traders, yours truly included, got this OPEC+ meeting wrong as expectations were high that they could hold off on the January increase given both the Omicron uncertainty to the demand outlook and the SPR releases.
The decision to keep the planned hike was accompanied with some protection as they could change their mind if further developments with the pandemic warrant a change in policy. OPEC+ seems optimistic about how bad of a hit crude demand will take from Omicron and that should be viewed as partially bullish.
Shortly after the decision, Iran poured some cold water on what was gaining momentum that Iran nuclear talks were going to be fruitful. Iran voiced pessimism over the Western intentions with resumption of talks. Secretary of State Blinken noted that we will learn in a day or two if Iran is serious.
The bottom appears to be in place for crude prices and that should remain the case unless several US states go into lockdown mode.
Gold
Gold is lower after another low jobless claims report suggests the labor market recovery continues to head in the right direction. Even though the upcoming nonfarm payroll report won’t reflect the Omicron fears, the job market remains tight and expectations are high for another strong jobs number on Friday.
Gold won’t get its groove back until investors are confident the strong dollar move is over. If rate hike expectations continue to rise for the Fed, while getting pushed back for the ECB, that is bad news for gold. Gold will have a difficult time until we get past the December 10 inflation report and the December 15 FOMC policy decision. Gold’s trading range is broadening, with short-term risks to the downside. If the dollar accelerates higher leading up to the Fed decision, gold may find major support ahead of the $1725 level.
Bitcoin
Bitcoin is lower as many crypto investors see some rough waters ahead as profit-taking could settle in even further if risky assets are dealt a blow on rising Fed rate hike expectations. Bitcoin is up over 94% this year and it looks like it is not performing like an inflation hedge anymore. Another day of regulatory scrutiny yielded no new reasons to not be bullish long-term with cryptos. Bitcoin is stuck in the $54,000 to $60,000 trading range and that may last a while longer.
Article by OANDA
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