After a calm open, risk got a little jittery by the time Wall Street closed yesterday. There is a sense of trepidation across the board and that is very much continuing to today.
While the overall risk tone is steadier somewhat, investors are arguably treading with caution still ahead of the Fed tomorrow. Not least with a couple of factors to stay more on the tentative side for the time being.
For one, inflation fears are still persisting and that could spur a more hawkish Fed this week. US PPI figures later today will serve as a bit of a teaser perhaps before the main event tomorrow.
Secondly, the omicron variant has finally landed in China. While it isn't quite making a big splash just yet, be wary of the response by the Chinese government. Authorities have been adamant on their zero-COVID policy so expect tighter measures/restrictions to follow.
In turn, that is very well going to impact global supply chains even more. We already got a glimpse of that from the situation in Zhejiang earlier in the day here. This creates a chain reaction that spurs higher inflation down the road. And that's when we get to pressure on central banks once again as outlined above.
For now, equities are steadier and holding a light advance while bond yields are flattish today. But considering the factors at play, we may be in for a more volatile second-half of the week surely, if anything else. So, strap yourselves in.
