Omicron, Apple, Tapering - What next for the Nikkei?

The reappointment of Fed Chair Powell two weeks ago was meant to be about keeping the status quo. A move that removed uncertainty, to allow risk assets to carry on their rally into year-end.

Japan flag

However, in an unexpected twist this week, Fed Chairman Powell, in a Congressional testimony, made a hawkish pivot alluding to the potential for accelerated tapering of the Feds bond-buying program and said it was no longer appropriate to include the word “transitory” when talking about inflation.

 

The pivot coming after iron ore and lumber prices have fallen by 50%, steel prices by 25%, and crude oil by 20% has left many scratching their heads. If the pivot had come the week before Omicron's arrival, the likelihood is the market would have accepted it willingly as the Fed was moving towards the market's pricing of three interest rate hikes in 2022.

However, coming just days after the arrival of the Omicron that brings with it uncertainty around growth, it has sparked memories of December 2018 and a 15% sell-off in stock markets. The result of a hawkish Fed into slowing growth courtesy of the U.S. - China trade war.

Raising further concerns about the growth outlook, news today that Apple has told its component suppliers that demand for the iPhone13 has weakened.

Over the past two weeks, the Nikkei has corrected by almost 8%, significantly underperforming its global peers, partly courtesy of yen strength, after completing a five-wave advance from the 15,680 March 2020 Covid low at the September 30,620 high. 

The correction appears to be missing a competed third leg lower, which targets wave equality at 26,325, reinforced by the 38.2% Fibonacci retracement at 25,000. 

Within the band of support, between 26,325 and 25,000 watch for basing as an initial sign to consider opening longs in anticipation of the uptrend resuming towards 33,000.

  Nikkei Daily Chart 2nd of Dec

Source Tradingview. The figures stated areas of December 1st, 2021. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

 

 

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