WeekWatch -‘Last week, world stock markets continued reacting to data related to how economies are recovering from the pandemic’ Jan 22
Last week, world stock markets continued reacting to data related to how economies are recovering from the pandemic, such as inflation measures and economic output. These themes have been dominating headlines for the past few months.
In particular, the question of how quickly the Federal Reserve (the US central bank) will reverse its monetary policy this year continued to generate attention. Having stepped up its various forms of support in 2020 to help markets recover from the shock of the pandemic (like many central banks around the world), officials at the bank are now signalling that they will reduce their support in order to combat the challenge of rising inflation.
On Tuesday, for example, the Chairman of the Federal Reserve (the US central bank), Jay Powell, spoke to a Senate committee about the future. His comments have been closely scrutinised for clues about the direction of US monetary policy, and last week’s remarks appeared to reassure markets. In particular, he said that the bank will act to curb inflation, but that it expects inflation to peak in the middle of this year.
New data emerged last week on inflation, showing that US consumer prices were up 7% in the month of December compared to the same month the year before.
By the end of the week, US stocks had recorded their second weekly decline in a row, after the shares of large US banks dropped after some lower-than-expected financial results from JP Morgan.
It’s worth remembering that despite the uncertainty surrounding the Omicron variant, and rising inflation numbers, global equity markets are still close to their all-time highs. For example, the FTSE All-World index remains close to the record high that it reached earlier this month.
In the UK, meanwhile, there was some positive news towards the end of the week. On Friday, the Office for National Statistics revealed that the UK economy surpassed its pre-COVID level in November for the first time since the pandemic struck. It put the rise down partly to a surge in early Christmas shopping.
Suren Thiru, the head of economics at the British Chambers of Commerce, said: “Stronger growth in November is likely to be followed by a modest fall in output in December and January, as consumer caution to socialise and spend, and mounting staff absences sparked by Omicron and Plan B limit activity.”
“While the UK economy should rebound once Plan B measures are lifted, surging inflation and persistent supply chain disruption may mean that the UK’s economic growth prospects remain under pressure for much of 2022.”
As investors, it can be challenging to choose the best path forward amid so much uncertainty about the rate of economic recovery, inflation, and COVID-19 variants. However, investing with a long-term mindset and a diversified portfolio means you can take comfort from the fact that your investments aren’t reliant on any one outcome.
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