Market Overview – 07/12/2021

Global equity markets continued their volatile ride last week as the scientific community grappled with the potential consequences of the new Omicron strain of coronavirus. Although data from South Africa suggests that sufferers are demonstrating relatively mild symptoms, it is really too soon to tell how fast this variant will spread and how resistant it is to existing vaccines. In the UK and the rest of Europe, Delta remains the dominant form of coronavirus and is likely to remain so for the next month or so even if Omicron starts to take hold. Rising cases have resulted in lockdowns in Austria and Germany, which for those who have experienced the joys of Christmas markets in those countries, is a serious blow.

Having maintained a fairly dovish profile, with regard to the future path of monetary policy, the Federal Reserve Chair Jay Powell changed tack last week. Recently the central bank outlined its plan to reduce the pace of bond purchasing. This tapering would see the programme wound down by the middle of next year. However, it would appear that Powell is now more concerned about inflationary pressures taking hold to the extent that the Fed will no longer describe inflation as “transitory.” At a meeting last week, he suggested that tapering might have to be accelerated, implying earlier than expected interest rate rises. Meanwhile the Bank of England seems to be moving in the other direction, with strong hints that this month’s expected rate increase will be delayed into the New Year. As ever, central banks seem to be changing their minds on a frequent basis, which questions whether they should communicate with the market ahead of policy meetings at all.