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WeekWatch -‘Last week the new Omicron variant continued to impact markets’ Dec 21

WeekWatch -‘Last week the new Omicron variant continued to impact markets’ Dec 21

Last week the new Omicron variant continued to impact markets, as new data began to emerge on its impact and spread around the world.

Germany and Austria moved last week to place further restrictions on unvaccinated people, while in the US President Biden ordered tighter restrictions on international travellers. By the end of the week, the UK had recorded 246 cases of the new variant, according to the Health Security Agency.

Until more information emerges, markets are trying to assess the likely impact of the new variant. For the time being, suggests Adrian Frost from Artemis, a fund manager for St. James’s Place, they appear to be predicting that the Omicron variant will lead to more infections and more government restrictions around the world.

“Only time (and data) will tell, of course” wrote Frost, adding that the recent market sell-off looks similar to the one that took place when the Delta variant first emerged.

“But it’s worth remembering that the emergence of Delta triggered a sell-off, similar to last Friday’s, of 2.9% in the S&P 500 from 12-19 July. The yield on the 10-year US Treasury fell below 1.50% in early June and bottomed at 1.18% in early August. Both stocks and bond yields headed higher over the rest of the summer until a week ago, as investors concluded that the available vaccines worked against Delta.”

Meanwhile, earlier last week the Chairman of the Federal Reserve, Jay Powell, said that he supports tapering the bank’s asset purchase programme earlier than expected. In response to questions from lawmakers, he said that the chances of higher inflation had increased.

“The economy is very strong and inflationary pressures are high. It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases…perhaps a few months sooner,” he added.

The statements caused US markets to weaken, with the S&P 500 index falling 1.9% that day, and the technology-focussed Nasdaq Composite index dropping by 1.6%.

This matters for investors because central bank actions have been a key driver of the market recovery that began last year. These actions have helped to support asset prices through the pandemic. However, with economies now recovering, many are preparing to taper down their levels of support – or have already begun doing so. Although this will help to keep inflation in check, it is likely to have a negative effect on some asset prices.

Finally, in Asia last week, news about the ride-hailing app Didi caused the share prices of certain companies to weaken. The company announced plans to delist from the New York Stock Exchange last week, preparing instead to list in Hong Kong. Its share price fell around 20%, while other companies listed in New York also fell – including JD.com, Baidu, Alibaba and Pinduoduo.

 

 

Artemis is a fund manager for St. James’s Place

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