FX Daily: Fears still lurk behind hopes

Monday was considered a relief rally.
Philip Wee07 Dec 2021
    Photo credit: Unsplash Photo

    Investor jitters subsided with Omicron fears and China’s required reserve requirement cut. Dow, S&P 500 and Nasdaq Composite rallied 1.9%, 1.7% and 0.9% respectively in the overnight session. Attention turned to the Federal Reserve which is expected to step up the pace of tapering of asset purchases at the FOMC meeting on 15 December. The US 10-year treasury yield rose 9.1 bps to 1.434% and lifted the USD index (DXY) by 0.1% to 96.3. The improved risk appetite was reflected by the depreciation in negative-yielding currencies such CHF (-0.9%), JPY (-0.6%) and EUR (-0.3%) and the appreciation in commodity currencies such as AUD (+0.7%) and CAD (0.7%). 

    Monday was considered a relief rally. Dow did not close above the opening level (35,367) of the sell-off on 26 November. Stock market futures are flat after the rebound in the overnight session, wary of a repeat of last week’s ups and downs from the hopes and fears over Omicron. Although “a bit encouraged” that Omicron might not be as severe as Delta, White House’s chief medical officer Dr Anthony Fauci acknowledged this remains conjecture on preliminary data. EU is discussing whether to ease travel curbs to South Africa where hospitalizations have yet to surge with Omicron cases. South Africa is taking no chances and is preparing its hospitals for more admissions. Europe is also increasing measures to contain the spread of Covid-19 infections ahead of Christmas. Health experts continued to warn against complacency on unsubstantiated conclusions over Omicron.

    Apart from FOMC, attention will also fall on the European Central Bank and Bank of England meetings on 16 December. Like Omicron, it is too early to conclude if the BOE would refrain from a rate hike. Although BOE hawk Michael Saunders might abstain from voting for a rate hike on Omicron, BOE Deputy Governor Ben Broadbent sees inflation exceeding 5% in April and monetary policy working with a lag to bring inflation back to target. ECB will decide on its pandemic emergency purchase programme scheduled to end in March 2022 but is unlikely to decide on bond purchases after that. Until it gets more clarity on Omicron, ECB might need to show sufficient concern over above-target inflation first. Overall, the situation remains too fluid for any significant trends to emerge that last.


    Philip Wee

    Senior FX Strategist - G3 & Asia
    [email protected]

    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.

    The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.  The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation.  The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. 

    This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”) (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at [email protected] for matters arising from, or in connection with the report.

    DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-878-9999. Company Registration No. 196800306E. 

    DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.