Summer is here and as the mercury is rising, so too is inflation. US Federal Reserve chair Jerome Powell last night warned increases in consumer prices are not as transitory as he first thought, and markets have sold off in response.

The benchmark ASX 200 index (ASX: XJO) dropped 0.3% in the first 10 minutes of trade, taking its lead from the US where the Nasdaq fell 1.6% and the S&P 500 and Dow Jones each gave up 1.9%.

On a technical level, the XJO continues its pullback after reaching all-time highs in mid August. Price has been range bound between the 7480 resistance level and 7200 support level over the previous two months while the gap between the 50 Day and 200 Day Moving Averages shrinks. 

Bullish investors are holding the market above support levels at the 200 Day MA (7230) and 7200, where resistance can be seen at the 50 Day MA (7355) followed by 7400.

As the prominence of the Omicron variant, inflation and talks of increasing lending rates continues, it is difficult to ignore that this is a fundamentally driven market.

Outside of equities, the Australian dollar fell to its lowest level in just over a year, down to US70.63 cents. 

Gold also dipped with higher interest rates making the opportunity cost for the yellow metal larger than they have been, but the losses came after a series of gains triggered by the outbreak of the new COVID variant. 

And even with the prospect of rate hikes, gold remains a popular hedge against inflation and could see further gains as investors look for alternative assets.

Speaking of omicron, the latest COVID mutation has already forced the Australian government to delay its border reopening plan and introduce new rules – though with assurances the changes to border restrictions will be temporary.

It’s probably not the news Virgin Australia wanted to hear. The company’s annual report, filed last night, shows the business lost $76.8 million last year, with passenger revenues alone falling from $4 billion to $1.2 billion.

Maybe this latest variant will further strengthen the uptick in domestic tourism and road trips we saw at the start of the year.

In other news, home prices in every capital except Darwin increased in November, and are up more than 20% year-to-date, and while these gains have pushed household wealth to record levels in recent months, they also have policymakers nervous. 

Stronger house prices have come with larger mortgages and more borrowing, and this increase in debt could derail our financial stability if things take a turn for the worse.

At any rate, the massive gains we’ve seen lately are expected to lose pace through next year with a correction on the cards for 2023. Tomorrow’s ABS lending indicators could be an interesting read, then.

Looking forward, December is poised to be a big month. Around 18 resources companies are expected to make their ASX debuts in a slew of IPOs, while the ASX is expected to swell by $84 billion as part of the pre-Christmas ‘Santa rally’.

Reach Markets also has a handful of deals we’ll be working on over the next two weeks as well, and I’d encourage you to take a look at those as they come through.

In the meantime, however, enjoy that fresh summer sun, and I’ll be back next week.

We have an upcoming webinar with a company that is enabling better safety and energy- efficiency on Australian roads. Traffic Technologies (ASX: TTI) is a premier provider of hardware and software traffic solutions that has recently secured contracts worth up to $17 million with major clients over the past three consecutive weeks – creating a pathway to ongoing profitability and recurring revenue.

Join us on Friday, 3rd December, at 11am (AEDT) for a special webcast with Traffic Technologies managing director Con Liosatos, which will be an interesting conversation for investors. Click here to attend.