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Weekly comment: Managing expectations

Date: 01 December 2021

Weekly podcast: Market overview

This week’s host, Pavan Harnal discusses the ups and downs of the past week with Equity Research Analyst, Jamie Maddock and Head of Fixed Interest Research, Richard Carter. Among the topics discussed – inflation, Covid-19 Restrictions, as well as what markets will focus on next.

Market overview – Alan McIntosh, Chief Investment Strategist

When I wrote last week that Covid-19 remains a serious global medical issue, little did I know that we would be about to see a new variant reach our shores. Looking at the things that markets were concerned about going into year end and early 2022, the likelihood of elevated levels of inflation persisting and responses from central banks seemed front and centre in most people’s minds. A new variety of coronavirus was further down the list. Part of the reason is that Delta has been the dominant variant for six or so months now and “managing” it largely seemed a function of local vaccination intensity. Of concern is that the new Omicron version would appear to have a faster transmission rate than Delta as well as an increased risk of reinfection. At least the reaction time from governments has been swifter than in the past and pharmaceutical companies have already started adjusting vaccines to cope with this new virus. It is worth remembering that from the first cases of Delta being found in the UK in mid-April, it took only two months for it to become the dominant variant.

Markets inevitably headed in a “risk-off” direction on Friday. With the US closed for Thanksgiving the previous day and only open for a few hours on Friday, price movements were likely exaggerated by a reduced level of liquidity. Major equity markets fell around 3%, and bond yields moved lower. Share prices of sectors that are sensitive to economic activity were hurt the most. Travel and leisure, especially airlines and hotel groups, were hit as tighter travel restrictions were introduced. The oil price fell by 10% . Very few company shares were up, most notably pharmaceutical companies working on new vaccines. As I write this on Monday, equity markets have recovered some of Friday’s losses. Optimistically, we have been here before and our knowledge of dealing with a pandemic that is now nearly two years old, is much greater. Nevertheless, some of the optimism that led to new all-time highs being reached in the US index only a week ago has been dented. Market participants will unquestionably pore over all the data that emerges over next few weeks to determine whether Omicron is more or less of a threat than Delta.

Speakers

Alan McIntosh

Chief Investment Strategist

Pavan Harnal

Trainee Investment Manager

Jamie Maddock

Equity Research Analyst
Richard Carter

Richard Carter

Head of Fixed Interest Research

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