Effect of Omicron on the market in 2022
Effect On Gold
With the dollar rising and risk sentiment improving, gold eased on Monday, resuming a broad decline from the previous week, as markets assessed how severe the economic impact would be from the Omicron Coronavirus. World markets have returned to some degree of calm after last week’s selloff, which was triggered by the discovery of a new variant that prompted some countries to tighten border controls.
In recent weeks, gold has been under pressure due to the prospect of higher interest rates, which increase the opportunity cost of holding non-yielding assets. Gold has been one of those materials in the market that has been affected the most. The market also closely monitored the timeline for the Federal agencies to tighten monetary policy. Gold was further depressed by the strengthening dollar, which made bullion more expensive for overseas buyers, as well as higher treasury yields.
Effect On Bitcoin
In the second half of October, there was a temporary but equally dramatic bullish move (long bitcoin). In sum, these moves suggest wealthy retail investors who can afford to purchase the typical $300,000 bitcoin futures contract on CME are making short-term speculative trades together to take advantage of short-term fluctuations in the volatile cryptocurrency market.
The market for providing insights into crypto trading has grown from trading platforms such as LMAX Digital and Coinbase to US banks with crypto research departments in recent weeks and months. The wealthiest retail traders require specialized brokerage services to buy and sell CME crypto futures. This can be done through firms like ADM, Stonex, thinkorswim (owned by Schwab), and also a few investment banks that sell CME crypto futures to wealthy clients.
Market participants in the CME bitcoin futures market have taken on and eased off trading risks with surprising fluidity. There is an uncharacteristic short bitcoin market among retail traders at the moment. However, a small (eight to ten) group of asset managers active on CME futures took massive long positions in bitcoin in November, summing more than 5k bitcoin futures contracts worth 1.5 billion American dollars.
So, we saw in October that the long bitcoin futures positions of commercial and retail traders coincided with the ProShares BITO bitcoin exchange-traded fund launch, which prompted asset managers to increase their holdings of bitcoin in their funds, following institutional client demand.
Several commercial traders, which are companies and/or professionals with deep industry and market knowledge, are generally hired to lower business risk through the use of futures contracts. Another side effect of this is the fact that their bitcoin holdings are also cut sharply to pre – BITO levels while it is the time to boost their spread contracts sharply. This refers to the practice of holding long and short positions in the same contract to provide liquidity to those who require it.
Over the past several weeks, the traders have built up a large short position equivalent to $113 million worth of MBT futures contracts, making them the largest short liquidity providers. These traders have gone from facilitating liquidity during the big surge in bitcoin ETFs in October to concentrating on a smaller amount of exposure and selectively providing liquidity for new products, such as MBTs.
Impact Of The Third Wave Of Omicron On The Economy And Money Flowing Into Assets
In contrast to the first wave, many high-frequency indicators began showing a faster rebound following the ebbing of the second wave of Covid. The combination of this with an unexpected turnaround in exports growth was expected to push GDP up to 9.4% in FY2022. As a result of the immunization pace, the economic recovery was pretty much on track until the third quarter of FY2022.
The stock markets have largely remained untouched even as all three waves of Covid-19 have spread rapidly and several states have imposed restrictions. The number of active Covid cases rose sharply from under ten thousand on December 28 to over ninety thousand on Wednesday, while the benchmark Sensex price gained nearly 3,500 points, or 4.2%, from 57,794 on December 30 to 60,223 on Wednesday.
Low-interest Rates Cause Inflation
People’s incomes are typically affected too when growth contracts, as it has this year, or when it decelerates, as it did throughout 2019. As a result, fewer and fewer dollars are being spent on the same amount of goods. It either results in the inflation rate decelerating (the price increases by 1%, not 5%; also called “disinflation”) or, conversely, in the price falling by 1% (also called “deflation”; the price decreases by 1% instead of increasing by 5%).
In such situations, a central bank lowers interest rates to encourage spending and boost economic activity by that route. Generally, lower interest rates mean that keeping money in the bank or any other type of saving instrument is less profitable. As a result, more money is coming into the market, resulting in increased growth, and inflation.