F&O contracts expiry would spurt volatility

Fears of rapid spread of Omicron variant resulted in sell-off in domestic equities. However, FIIs sell-off fell Sensex & Nifty rebounded and closed at 0.20% gains for the week. Midcap & Smallcap indices declined and underperformed the frontline indices. Going froward, markets will look at Fiscal deficit figures and Auto sales. 3 IPO companies will list on bourses during the coming week. As the December monthly F&O contracts expiry is due in the week ahead, markets would turn volatile. Due to holiday season markets are witnessing lower volumes and are expected to stay range-bound in the coming week.

FIIs/FPIs have sold Rs. 59 billion in November 2021 and Rs. 178 billion in December 2021 (as of 26^th December). Foreign Institutional Investors (FIIs) Derivative Statistics have shown a fall in the open interest (OI) in stock futures, index options, index futures and rise in OI for stock options.

On the occasion of Christmas Wallstreet indices were shut on Friday. On Thursday, S&P 500 closed at all time highs and macro-economic data came in better than expectations. However, PCE inflation rose to 5.7%, highest in 39 years. During the week, Dow Jones up by 1.65%, Nasdaq surged by 3.21%, and S&P 500 rose by 1.57%.

European markets were partly opened on Friday. FTSE 100 opened positive but closed on a flat note amid thin trading volumes and as investors were monitoring developments around omicron coronavirus variant. During the week, DAX up by 1.43% and FTSE gained by 1.4%.

Crude oil prices gained by 3.56% during the week rebounded from Omicron fear sell-off. Signs of strong demand buoyed oil prices, with US crude inventories declining more than expected and soaring natural gas prices in Europe and Asia stoking expectations that some industries would switch fuel from gas to oil.

Gold prices closed above USD 1800 per dollar on Friday as the dollar continued to fall despite strong US economic data. Moreover, expectations that inflation is likely to persist buoyed Gold prices. During the week, Gold prices gained 1%.

Global Economy

The current account gap in the US widened to USD 214.8 billion, or 3.7% of the GDP in the Q32021 from an upwardly revised USD 198.3 billion in the prior period and compared to forecasts of a USD 205 billion shortfall. It was the largest current account deficit since Q3 2006 as imports surged to a record as companies were trying to fill up inventories.

The number of Americans filing new claims for unemployment benefits remained unchanged from last week�s upwardly revised level at 205,000 in the week that ended 18^th December 2021, in line with market expectations and remaining below pre-pandemic levels.

Japan's consumer prices rose 0.6% YoY in November 2021, the most in nearly two years and compared with a 0.1% gain a month earlier.