U.S. Opening Bell: Markets Edge Higher Ahead Of Holiday; Oil Wavers, Yields Flat

Key Events

Futures on the Dow Jones, S&P 500, NASDAQ and Russell 2000 and European benchmarks extended a rally on Thursday after new studies seem to show that the Omicron variant of COVID is not as serious as previously thought.

Yields remain stubbornly low, failing to move above 1.5%.

Global Financial Affairs

Reports on a study by Imperial College London indicate that while the new variant's contagion rate is very high, its severity is softer than originally predicted, and the need for hospitalization is almost half that of the Delta strain.

All four US index futures were in the green this morning and cyclicals on the Russell 2000 led today's advance, up 0.5%. Companies listed on this index are heavily focused domestically and therefore require an open economy to thrive. Conversely, futures on the NASDAQ 100, which lists growth stocks, underperformed, up just 0.01%. The cyclical rotation seen in Thursday's futures reverses the paradigm that started on Tuesday.

The same trend was visible in European markets where the travel and leisure sector, as well as carmakers, led the rally. The difference between the two regions is that Europe did see economically sensitive sectors participating in the rally. The STOXX 600 Index advanced 0.4%, extending the rally to its third day in a row, the longest since mid-November's six-day winning streak. However, it won't be a smooth ride, judging by the technicals.

The pan-European gauge stopped short at the month's high, and volume was the lowest since September.

Earlier, Asian benchmarks were all up, providing a green light to sentiment ahead of the Christmas holiday. Japan's Nikkei gained 0.8%, outperforming regional peers, as infections seem to have been brought under control in most of Asia.

Traders cheered on Wednesday as US stocks climbed for a second day on Wall Street. Pfizer (NYSE:PFE) rose after its antiviral COVID drug received emergency approval in the US from the FDA. The stock jumped as much as 3.75%, though shares settled with a modest 1% increase.

As measured by the ROC, the stock seems to be getting pushed back after momentum reached the most extreme oversold levels since the massive April 2020 rebound. Nevertheless, the pattern in which it's been traded suggests the current weakness could be a technicality—bulls are profit-taking after a sudden surge in the price—and when that is done the price will take another strong leg higher.

Since November, Tesla (NASDAQ:TSLA) shares have surged 7.72%, its most significant jump after CEO Elon Musk said he is "almost done" selling shares in the EV manufacturer.

While the price jumped back above a descending triangle, the electric car giant's stock is still trapped within a bearish channel. On the other hand, while the volume accompanying the price advance didn't spike, it was high enough to back it up.

Earlier in this post, we pointed out that cyclicals are leading the rally. We consider that a positive sign. If investors expect the recovery to endure, economically sensitive sectors should outperform. We were suspicious of the recent rally as market watchers were claiming that the rally in growth stocks indicated positive sentiment on the economic recovery.

While recovering from yesterday's dip, Treasury yields on the 10-year note are flat.

Why are investors holding on to Treasuries if they trust the current equity rally? Why don't they divert their available capital to more risk opportunities? What are they hedging against?

Perhaps bonds are mired amid some profit-taking, creating a symmetrical triangle whose presumed exit would be to continue with its overall direction, downward? That would also agree with our earlier analysis of a double-top, in which the neckline, a red line, runs right through the symmetrical triangle. If that happens, we'll get a fully bullish picture.

The dollar was little changed, reflecting Treasury's stagnation.

Nevertheless, gold, which generally maintains a close negative correlation with the greenback, managed to advance for the second day to its highest level since Nov. 22.

Bitcoin edged lower for a second day.

The cryptocurrency is finding resistance by the top of its falling channel.

Oil gave up earlier gains, which would have extended a rally to its third day. Presumably, Omicron concerns are weighing on WTI—which has had a frenetic year—since it's the most sensitive commodity to any COVID restrictions. This seems to outweigh a 4.72 million barrel drop in inventories, reported yesterday. Or perhaps the price is stuck due to technicals.

The price found resistance at $73, where highs have been smacked back down repeatedly since November.

Up Ahead

• Canada reports GDP figures on Thursday.
• On Thursday initial jobless claims are published.
• On Friday US markets are closed and UK markets close earlier.

Market Moves

Stocks

• The STOXX 600 rose 0.2%
• Futures on the S&P 500 were little changed
• Futures on the NASDAQ 100 were little changed
• Futures on the Dow Jones Industrial Average were little changed
• The MSCI Asia Pacific Index rose 0.8%
• The MSCI Emerging Markets Index rose 0.8%

Currencies

• The Dollar Index was little changed
• The euro was little changed at $1.1322
• The Japanese yen rose 0.1% to 114.29 per dollar
• The offshore yuan was little changed at 6.3758 per dollar
• The British pound rose 0.2% to $1.3373

Bonds

• The yield on 10-year Treasuries was little changed at 1.46%
• Germany's 10-year yield was little changed at -0.29%
• Britain's 10-year yield advanced two basis points to 0.90%

Commodities

• WTI crude was down 0.15% at $72.93 a barrel
• Brent crude fell 0.3% to $75.53 a barrel
• Spot gold rose 0.2% to $1,807.20 an ounce