Team No Comments

Please see below, the weekly market commentary from Brooks Macdonald, providing an update on monetary policy and the ongoing risk of the Omicron variant – received yesterday afternoon – 13/12/2021.

  • Equities rallied strongly last week as Omicron fears eased
  • This week sees the Federal Reserve, European Central Bank and Bank of England announce their latest monetary policy
  • Existing vaccines are shown to provide good protection against Omicron, accelerating the importance of booster jabs

Equities rallied strongly last week as Omicron fears eased

Last week saw an uptick in optimism around the Omicron variant with equities benefitting from a broad rally early in the week that favoured cyclical and tech sectors. The rally lost steam by the end of the week, but this is more of a reflection of the sharp gains on Monday/Tuesday rather than a sudden bout of fear.

This week sees the Federal Reserve, European Central Bank and Bank of England announce their latest monetary policy

This week could be pivotal for central bank policy, with eight of the G20 central banks reporting on their latest policy. Those eight contain the Federal Reserve (Fed), European Central Bank (ECB) and Bank of England, with all of those banks expected to be considering a change to their monetary policy. Starting with the Fed, with the Consumer Price Index number last Friday in line with (elevated) expectations, an acceleration of the Fed’s tapering programme looks likely. Should the speed of asset purchase tapering double, for example, this would lead the current process to conclude in March and leave some room for the Fed to consider the timing of their first rate hike. This week’s Fed meeting will also provide the latest ‘dot plot’ of interest rate expectations so there is a lotto focus on. The ECB was expected to unveil a shift in policy towards rates guidance rather than liquidity guidance, in essence a slight pivot towards tightening policy. Given Omicron, this may be delayed until the New Year but it is a close call. In the UK, the Bank of England is expected to raise interest rates by 0.15% to 0.25% but again this is dependent on how the bank interprets the latest Omicron risk which has certainly grabbed headlines this weekend.

Existing vaccines are shown to provide good protection against Omicron, accelerating the importance of booster jabs

On Friday, the UK released a report looking at the efficacy of three Pfizer vaccine doses (two initial, plus a booster) which showed a c.75% effectiveness against symptomatic disease. The data underlined the importance to governments of the booster campaign and plans were announced to offer all adults in England a booster by 31 December. Omicron’s growth rate appears to be significantly higher than delta and this is causing governments to release some quite daunting predicted case numbers.

With each day that goes by, financial markets are building confidence that Omicron will be less severe than delta but that it will spread rapidly, leading to some nervous moments. Short term restrictions are likely across the world as governments buy time for their booster rollout. Looking forward though, investors are more sanguine.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Alex Kitteringham

14/12/2021.