The main stock indices started yesterday’s trading session on a high note, although uncertainty surrounding the Omicron variant was growing. However, news of the first case of contagion detected in the United States triggered a strong selling flow that caused the North American indices to reach their lowest levels in more than a month.
Fears surrounding the contagion’s spread that could lead western economies to more closures and restrictions are very much present, and investors' risk sentiment is deteriorating by the minute.
All these things are taking place even though we don't know much about the severity of the infection that Omicron causes or the effectiveness of current vaccines.
Perhaps ignorance and lack of information are causing a greater level of uncertainty. Usually, when these things creep in, the market tends to react by moving away from risk exposure. As a direct consequence, treasury bonds returned yesterday to their status of safe haven, with the yield of the 10-year US benchmark reaching 1.42%.
But as we mentioned yesterday, there is another open front that threatens investors' risk sentiment – the rise of interest rate hikes in the United States due to persistent inflation that is no longer "transitory" for the president of the Federal Reserve.
Yesterday Jerome Powell confirmed this again before the House of Representatives. The market expects an increase in the rate of reduction of bond purchases – of up to 30 billion per month - will be announced in the next meeting scheduled for December. Such a move seems even more likely after the publication of Fed’s Beige confirmed the inflationary outbreaks in all the states, even with wage tensions. This also brings forward the date of a potential rate hike for the second quarter of next year.
In this scenario, the USA30 index closed the session down 1.29% and technically traded below the 200-day SMA line - the lowest level since July 2020. The critical benchmark zone is around 33,700 - the main support below which the index would switch to a bearish trend.
Tech100 Index also lost ground at the end of yesterday’s session, dropping more than 2%. Technically, it fell below the lows reached on November 10 and around the 0.382 Fibonacci retracement level.
Sources: Bloomberg, Reuters.