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Please see below this week’s Markets in a Minute update from Brewin Dolphin – received late yesterday afternoon – 29/12/2021

Markets enjoy rally into Christmas

Further evidence that Omicron may be milder than previous strains saw markets become more optimistic that this variant will not have a lasting impact over the economy.

In the US, the S&P 500 ended its last trading day before Christmas at a record high, up 2.3% for the week, while the Nasdaq was up 3.2% and the Dow 1.7%.

The UK’s FTSE 100 rose 1.4%, to hit its highest level since February 2020 on Christmas Eve. The Dax was also up 1.5%.

In Asia, China’s Shanghai Composite slipped 0.4%, with ongoing Omicron cases weighing on market sentiment.

Omicron optimism continues

As markets reopened after the Christmas break, they retained their momentum from the previous week. US stocks rose further on Monday before stalling on Tuesday to end a four-day rally for the S&P 500 and Nasdaq as investors locked in their gains.

London stocks maintained their momentum in early trading on Wednesday on the optimism that the Omicron variant will be less severe than previous strains. European shares also rose in the morning trade. The day’s session is expected to be quiet, with little new economic data that would drive markets being published.

UK GDP growth revised lower

Figures released by the Office for National Statistics (ONS) last week showed third quarter UK gross domestic product (GDP) grew at a slower pace than previously thought. GDP rose by 1.1% in July to September, down from the initial estimate of 1.3% and a marked slowdown from the 5.4% growth seen in the second quarter.

Services output grew by 1.4% as coronavirus restrictions eased. However, wholesale and retail trade declined by 2.4%, while health and social work fell by 1.3%. Production output fell by 0.1%, revised down from a rise of 0.8%, amid ongoing supply chain challenges. Construction output also fell by 1.0% following four consecutive quarterly increases.

The ONS data also showed a 2.7% rise in household consumption in the third quarter, with increased spending on restaurants, hotels and transport following the reopening of the economy.

US consumer confidence rises in December

Over in the US, the latest survey from The Conference Board showed consumer confidence rose again in December after an upward revision the previous month. The index now stands at 115.8, up from 111.9 in November. The present situation index – based on consumers’ assessment of current business and labour market conditions – was relatively flat at 144.1. The expectations index – based on consumers’ shortterm outlook for income, business and labour market conditions – rose to 96.9 from 90.2.

Lynn Franco, senior director of economic indicators at The Conference Board, said the data suggested the economy maintained its momentum in the final month of 2021, while improved expectations about short-term growth “set the stage for continued growth in early 2022”.

The proportion of consumers planning to buy homes, cars, major appliances and holidays over the next six months increased, and concerns about inflation declined after hitting a 13-year high last month. However, Franco warned that confidence and spending will face headwinds in 2022 from rising prices and an expected winter surge of the pandemic.

Separate data from the National Association of Realtors showed existing home sales increased for a third consecutive month in November, rising by 1.9% from a year ago. A shortage of supply meant the median existing house price surged by 13.9% from a year ago to $353,900.

Several countries reinstate restrictions

A surge in Covid-19 cases has seen several countries reinstate pandemic restrictions as the Omicron variant continues to spread.

Germany announced that from 28 December private gatherings would be restricted to ten people, nightclubs would close, and football matches would be played behind closed doors. Portugal ordered bars and nightclubs to shut from 26 December and made working from home obligatory from that date until 9 January. Over in China, which has a ‘zero-Covid’ policy, up to 13 million people have been placed into lockdown in the city of Xi’an.

There is some evidence to suggest Omicron is milder than the Delta variant. An Imperial College London study pointed to a 20-25% reduced chance of a hospital visit and a 40-45% lower risk of being admitted overnight. However, scientists have stressed that studies such as these are preliminary, and concerns remain that the sheer number of cases could put serious strain on health services.

Please continue to check back for our latest blog posts and updates.

Charlotte Clarke

30/12/2021