🚀Europe and Omicron 🚀

⌛️Omicron and the UK restriction🥊

Equity markets took a beating, with most stocks lower. The UK had imposed more significant Covid restrictions, and the expected tighter monetary condition in Europe weighed on sentiments. Essentially, the UK is imposing another work  from home order and the mask guidelines as Omicron starts to sweep across the country again. 

Cyclical stocks tend to be hurt the most as the uncertainty of how the Omicron variant will develop with the new restriction adds pressure to a recent recovery after a sharp drawn down last week. It is a break from a risk-on sentiment. 

💼European Central Bank: I am cutting!🧯

Indeed, tech stocks had a tough day after a report hints that ECB is looking to reduce its monthly bond purchase, which is likely to follow the Fed’s action. Naturally, this negatively impacts tech companies for their rich valuation, given that their long stream of expected future profits is likely to reduce in present value. 

🕹Technology stocks valuation remains elevated🧨

As a quick guide, the tech stocks do have room to move lower because the multiple of next year earnings per share is around 32 times. This was more than the 25 times multiple before the pandemic in a situation when bond yields were higher than now and that the Fed wasn’t rolling in cash into the market in that period. 

Likewise, a better jobless claims reading gives the Fed more reason to proceed to tamper as the employment outlook seems to stabilise. 

Today, the US inflation data will be most looked into, possibly pushing the Fed to pursue a more aggressive tapering process.

It has been a challenging past week, and Pika World wishes all friends a safe trading day ahead!