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01.12.202114:39 Forex Analysis & Reviews: American Premarket on December 1: Ray Dalio of Bridgewater Associates vs. Cash

Futures on US stock indices are rising in early trading on Wednesday after another major sell-off on Tuesday, due to concerns about a new strain of the omicron coronavirus and the actions of the Federal Reserve System aimed at more quickly curtailing its ultra-soft monetary policy. Dow futures rose by 282 points. S&P 500 futures jumped 1.03% and Nasdaq 100 futures rose 1.25%.

Treasury bond yields also rose markedly: 10-year Treasury bonds returned to the 1.5% mark after falling 8 basis points on Tuesday to 1.45%.

Exchange Rates 01.12.2021 analysis

Fed prepares markets for policy change

Yesterday, Federal Reserve Chairman Jerome Powell said that a strong US economy and high inflation could serve as a reason for the central bank to stop buying assets earlier than planned, although the new strain of the omicron coronavirus poses a new risk for the prospects. "I think it is appropriate for us to discuss the prospects for a more active curtailment of support measures at the next meeting, which will take place in a couple of weeks," Powell said on Tuesday. "During these two weeks, we will try to get as much useful data as possible to understand how the new strain of coronavirus may affect the economy in the future," Powell added.

Against this background, the Dow lost more than 650 points, the S&P 500 fell by 1.9%, and the Nasdaq Composite technology dropped by 1.6%.

Many investors, along with the head of the Federal Reserve System, continue to wonder: how the new strain of the omicron coronavirus will affect the work of the American economy in winter. Someone has already begun to predict a 10-15% drop in the market, someone believes that the strain will not have such a serious impact on the labor market as it did in the past waves of the pandemic.

At the moment, the American economy is very strong, but inflationary pressure is getting higher and higher, and a new strain of coronavirus can only lead to further growth. Goldman Sachs said that against this background, the Fed will double its pace of reducing the bond purchase program, and in June next year, it will raise interest rates. Read more: What policies are the Fed and the ECB pursuing and how does it affect the direction of the EURUSD pair

However, the fact remains that a more active curtailment of support measures tells investors that the central bank is focused on fighting inflation, and not on new threats of a pandemic. Yesterday, the CEO of Moderna said that, in his opinion, existing vaccines will be less effective against the new variant, and a specific vaccine for omicron will arrive in medical institutions only in a few months.

Today, data on the manufacturing PMI for November, the ISM manufacturing index, and construction costs for October will be released. The report from ADP on wages in the private sector, as well as job growth, will also be important. Economists expect at least 506,000 private jobs to be created, up from 571,000 in October.

Now let's take a look at the premarket and run through the main news:

Merck securities led the way in growth, rising 4% in the premarket after its drug for the treatment of COVID received approval from the FDA.

Exchange Rates 01.12.2021 analysis

Shares of energy companies also showed a sharp increase: Occidental Petroleum rose 3.4%, after the rise in West Texas Intermediate oil prices, which jumped more than 4% today to almost 69.5 dollars per barrel. Carnival securities rose 2.9%, Wynn Resorts - 2.6%, and Hilton Worldwide - 2.8%.

Bridgewater Associates

Exchange Rates 01.12.2021 analysis

Before going through the technical picture, I would like to say a few words about today's interview with Ray Dalio from Bridgewater Associates. In his opinion, there is no place for cash now, despite the instability in the markets caused by a new strain of coronavirus. "Cash is an unsafe investment because it will be eaten up by high inflation," Dalio said. According to the billionaire investor, in turbulent times it is important to have a reliable and well-balanced portfolio. They do not recommend keeping a large amount of cash and accumulating even despite the new strain of coronavirus, which has not yet been fully studied and it is not clear what measures will be required to contain the next wave of the pandemic.

As for the technical S&P 500

Exchange Rates 01.12.2021 analysis

The index is located within the side channel, which I have been talking about quite a lot lately. The primary goal of buyers of a trading instrument is its return to the resistance of $ 4,660, which was not possible yesterday. Only a real consolidation at this level will lead to an increase in the area of $ 4,718 and will keep the chance of updating historical highs. The fact that we have a meeting of the Federal Reserve System in December and the fact that we generally already know what changes are waiting for us will bring buyers back to the market after reducing the risks due to a new strain of coronavirus. If buyers fail to cope with the task and do not break above $4,600, most likely we will see a repeated decline to $4,584, and then a breakthrough of this level – this will push the trading instrument to $4,551 and $4,512.

*Analisis pasar yang diposting disini dimaksudkan untuk meningkatkan pengetahuan Anda namun tidak untuk memberi instruksi trading.

Jakub Novak,
Pakar analisis InstaForex
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