Overnight Headlines

*Asian shares down for a third straight session, after US falls

*Dollar firms as Omicron worries continue  

*Oil and commodities ease on concerns new variant could reduce demand

*UK unemployment in line at 4.2%, jobless claims -49.8k vs -14.9k prior

USD traded broadly higher against its G10 peers at the start of a bumper week of central bank meetings. Traders looked to be squaring off risk positions ahead of the blitz of risk events. EUR dropped below 1.13 while GBP fell towards 1.32. Higher beta FX like AUD and NZD underperformed with the overall market mood more cautious. The latter neared the cycle low at 0.6736.

US equities sold off from Friday’s record close. Investors were comfortable taking profits ahead of this week’s Fed which is expected to combat persistent inflation with further measures. Omicron worries persisted with the UK ushering in a national vaccination campaign to beat the potential “tsunami” of new infections. The S&P500 fell 0.9% from Friday’s record close, while the tech-laden Nasdaq dropped 1.4%. Asian markets are following Wall Street lower. US futures are mildly positive.

Market Thoughts – Positioning into key meetings

Yesterday’s bid for the dollar amid a stock sell-off makes sense with increasing speculation of a hawkish-sounding Fed. There is some speculation that there could be a more aggressive dot plot. Otherwise, the FOMC could use language that points to a faster move to policy normalisation.

This does all presume that world’s most powerful central bank continues to look through the new Covid variant and any capacity to derail economic activity. At least a Fed doubling the pace of tapering will probably contrast heavily with the dovish messaging forecast from the ECB and BoJ later in the week.

Chart of the Day – Nasdaq loses the bid

Stocks closed lower with the time ripe for traders to consolidate positions and reduce risk. Looming interest rate rises and the spread of Omicron have added to a small bias to sell as investors near the end of the year.

The Nasdaq didn’t match the heights of positing an all-time top in the S&P500 last week. Prices have moved lower towards the 50-day SMA at 15,380. The 100-day SMA sits below here at 15,156 as next support, with this month’s low at 14,931. Bulls will need to get above last week’s high at 15,796 to take a look at the highs above 16,200.