Please see investment bulletin below from Brooks Macdonald received yesterday – 08/12/2021
What has happened
The rally in US and European equities continued on the back of renewed optimism that Omicron may be less of a headwind to the broader reopening narrative than previously feared. The headline US and European equity indices were both up over 2% with cyclical sectors and technology outperforming. The quid pro quo of this optimism is that bond markets are pricing in an earlier hike from the Fed and other central banks. Indeed, the market is now fully pricing in a June hike and an over three-quarter probability of a hike as soon as May next year.
US/Russia
The call between President Biden and President Putin took place yesterday amidst heightened tensions over Ukraine. During the two-hour call President Biden warned Russia of ‘strong economic and other measures’ if the country was to send troops into Ukraine. The US is also preparing a package of sanctions to deploy if Russia was to invade regardless, these include blocking the Nord Stream 2 pipeline and conversion access to US Dollars. The US is building this consensus sanctions package with European leaders, particularly Germany, to convince President Putin of the economic risks of military incursions at the Ukraine/Russia border.
COVID
Whilst investors are taking a more positive medium-term view, global COVID cases are rising. Governments continue to roll out tougher restrictions including an extension of Canada’s vaccine mandate and Sweden introducing COVID passports. Mirroring the actions in the previous 2021 waves, governments have been eager to preserve the freedoms for the vaccinated whilst providing further incentives to those who are not jabbed, to come forward. Austria, which went into lockdown a few weeks ago, is beginning to gradually reopen shops to the vaccinated next week with hospitality opening the week after.
What does Brooks Macdonald think
In a more normal week, the end of Chancellor Merkel’s 16-year tenure would be major news but with Omicron grabbing most of the headlines, this has been demoted. Chancellor Merkel has been a powerful force domestically as well as within the EU, helping navigate the financial crisis, Eurozone debt crisis and COVID. Today the Bundestag will vote on the next Chancellor with Olaf Scholz set to take over which will be a formality now that the fresh coalition has been agreed.
Another quick update from Brooks Macdonald, these regular investment bulletins help us keep up to date with what is happening in the markets.
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Charlotte Clarke
09/12/2021