Written by: Edward Moya | OANDA
It does not feel like the most wonderful time of the year for Wall Street. US stocks are not seeing a Santa Claus rally and in fact remain stuck in the COVID house of pain. Senator Manchin played the Grinch this weekend when he said he won’t vote for President Biden’s Build Back Better Act.
A deal could still happen in January as many traders remain optimistic that Senator Manchin is willing to work with the Biden administration. Last week he reportedly made an offer to support a $1.8T 'Build Back Better' bill that included universal pre-K and climate change initiatives, but excluded expanding child tax credit. Too much is at stake for the economy and pressure will grow on both sides to reach an agreement in January.
The current omicron variant is providing headaches for many parents across the country as school closings jump from 356 to 646 this week. Covid disruptions have been terrible for children and have also complicated parents' abilities to return to the workforce. Vaccine updates from Moderna and Novavax were both positive for the fight against COVID. Moderna’s study showed strong effectiveness against the omicron variant, while Novavax’s COVID vaccine was finally approved by European regulators.
FX
The lira resumed its spiraling plunge after Turkish President Erdogan left no doubt that his central bank’s unorthodox monetary policy will let the lira keep on collapsing. Erdogan said, “Do not expect anything but interest rate cuts from me.” Capital controls won’t be able to stabilize Turkish markets so the lira may continue to fall like a rock.
The lira delivered a historic reversal after Erdogan announced new extraordinary measures to support the lira. Given the lower trading volumes going into year-end, some traders are saying that’s it for trading the collapsing lira. Until Turkey abandon's its unorthodox monetary policy, some traders will fade the lira rebound.
Oil
Crude prices fell faster than risk appetite did after Senator Manchin said he won’t support President Biden’s “Build Back Better” legislation. The selling pressure was strong at the open as energy traders fixated on the rapid spread of the omicron coronavirus variant and more potential restrictions across Europe.
Oil pared losses after the stock market selloff eased on Wall Street and as Libyan oil production was disrupted. Militias shut Libya’s El Sharara, their largest oil field is capable of delivering 300,000 barrels of light crude oil a day. The disruption is in advance of the December 24th presidential election.
Despite all the talk about lack of reinvestment in new wells, oil prices have remained vulnerable on a deteriorating crude demand outlook thanks to the omicron variant. Oil market medium-term demand fundamentals still suggest that prices could once again regain bullishness, so traders may look for one last plunge before placing long-term bets for higher oil prices.
Gold
Gold prices did not stand a chance of having a positive to the trading week after Senator Manchin signaled President Biden’s Build Back Better plan did not have his support. Gold bulls already priced in Biden’s $2 trillion economic agenda, so the growing possibility of the economy not getting that stimulus was bad news for bullion.
Gold’s next big move might not be clear until the New Year, but for now it will likely trade like a risky asset. If the dollar shows signs of weakness gold should recapture $1800 and possibly extend higher. Trading volumes should continue to decline and that may have gold trade between $1775 and $1830 for the rest of the week.
Bitcoin
Another risk aversion session on Wall Street kept crypto traders hesitant in buying the Bitcoin dip. A key argument for holding cryptocurrencies is that fiat currencies will continue to devalue as governments continue to deliver unprecedented monetary and fiscal stimulus. Much of the cryptoverse already priced in President Joe Biden’s massive social and environmental bill and now that near $2 trillion stimulus plan may not happen.
Falling trading volumes could complicate what price action happens with Bitcoin. Many investors remain long-term bullish and the uncertainty over the potential short-term pain has many traders waiting until Bitcoin dips towards the $40,000 level. The next couple of weeks could be very choppy for Bitcoin as the primary catalyst may come from what happens on Wall Street.
Related: Dollar‘s Warning Signal