Equities slump before the US stages a recovery, gold experiences huge swings, GBP slumps

Dec 22 • Market Commentaries • 94 Views • Comments Off on Equities slump before the US stages a recovery, gold experiences huge swings, GBP slumps

Futures markets sold off sharply once markets opened on Sunday evening, early Monday morning. The cause of the broad-based sell-off was various. The UK had revealed a new variant and strain of the Covid virus earlier in the previous week. The country then announced Tier 4 restrictions on Sunday, resulting in its former EU partners blocking multiple ports of entry to any UK traffic on Monday and causing a massive backlog of lorries in Kent, England.

The fear of this Covid variant spreading caused mayhem on European financial markets once the London-European session opened, while US equity futures also suffered. Although UK and EU equity indices recovered some lost ground towards the end of the day once a plan to re-open the ports became evident, the leading indices had all closed in negative territory.

Equity indices sell-off before staging a recovery in the US

Germany’s DAX ended the day down -2.82%, UK FTSE 100 down -1.73% and France’s CAC down -2.43%. It’s been a lousy year for EU indices; the FTSE is down close on -16%, CAC down -10.5% and Spain’s IBEX down -20%. The exception is the DAX which is only down -0.55%.

US equity futures slumped, and the indices remained down once New York opened. The agreement to license another vaccine, the Moderna vaccine rollout starting in some States, and the EU’s EMA approving the Pfizer vaccine helped to improve overall sentiment.

Analysts were suggesting that the Pandemic Relief Bill was already priced-in; therefore, as the final Congress-Senate announcement looked likely on Monday, some investors banked their profits. Mid-session the US indices experienced a significant recovery and by 6 pm UK time, the SPX 500 traded down -0.58%, and the DJIA 30 was back in positive territory, up 0.05%.

Currency pairs fluctuate wildly during the day’s trading sessions

The US dollar index traded up in the session, breaking a multi-day losing streak, as safe-haven currencies initially lost their attraction during the session. At 6 pm UK time the index traded up 0.23%, down -6.40% year-to-date. USD/CHF also broke a multi-day losing streak, trading up 0.28% on the day, after trading in a vast bullish range, that saw price take out R3 before surrendering position back to R1. USD/JPY traded up 0.12%, and like USD/CHF the major-currency pair initially rose sharply, breaking through R2 before falling back to the daily pivot point.

As markets opened the euro slumped versus its peers, most notably EUR/USD slumped through S3 before recovering to a position above S1 just below the daily pivot point. The pair traded down -0.18% recovering from a 2%+ loss earlier in the day to trade at 1.2235 still up 9.50% YTD. EUR/GBP traded up 1.13% after rising by over 2% at one stage as price breached R3 to take out the 92.00 level handle before giving some gains back to trade at 0.9155 up 7.70% YTD.

GBP/USD crashes through S3

Sterling pairs whipsawed in wide ranges, oscillating between bullish and bearish conditions during the day’s sessions. At one stage in the London session, GBP/USD crashed through S3, trading down more than -2.0% while falling through the 1.200 level-handle.

At 6.30 pm UK time cable traded at 1.337, down -1.16% on the day and up 0.48% during the month. The admission that the Covid variant was out of control in the SE of England combined with blocked ports and no agreement reached over Brexit has caused mayhem to the UK logistics supply.

During Monday, the UK may have experienced a practice run of the chaos that will occur if they leave the EU on January 1 without an agreement. However, the UK government shows no appetite to ask the EU for a further extension of the transition period.

Gold whipsaws in a wide range as the fear index (VIX) rises

The price of gold experienced wild fluctuations during the day’s sessions. After breaching R3 and taking out the critical psyche level of 1900 during the early stage of the London session, the precious metal gave up the gains to slump through S3 and fall to a daily low of 1855. At 7 pm UK time the metal traded at 1877, down -0.15% on the day. Silver gained by 1.49% taking the YTD gains to over 45%.

The CBOE Market Volatility Index (VIX) often referred to as the “fear index” rose by over 13% on the day, indicating that volatility is high, and the risk-on sentiment might be turning. Oil also displayed volatile conditions; WTI crashed through S3 and then recovered some losses to trade down -2.70% on the day.

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