Archinomics weekly 06.12.21

Equities

US equity markets were pulled lower by Omicron fears and large caps outperformed. European markets were also volatile on growth and inflation concerns, although the FTSE 100 was boosted by sterling weakness. Japanese indices turned lower, as the country closed its borders to foreign nationals. In contrast, Chinese equities turned in a positive outcome for the week.

Bonds

The US Treasury yield curve flattened, with shorter dated bond yields rising in response to more hawkish indications on interest rates from the US Federal Reserve (Fed). Core eurozone bond yields fell, and prices rose, as growth forecasts were shaved. Investment grade and high yield bond markets saw bargain hunting after recent weakness.

Currencies

Safe haven currencies remained in demand, with the yen outperforming the US dollar, which gained against other majors. The euro suffered from falling growth forecasts and only made ground against sterling, which was weaker across the board.

Commodities

OPEC bowed to international pressure to stick with its planned increase in production levels, despite demand fears, and the oil price duly fell by 4%.

Responsible Investing

Covid vaccine developers Pfizer and Moderna saw pressure from the ICCR (Interfaith Center on Corporate Responsibility) as to how to promote the rapid expansion of vaccine production in low to middle income countries.

Macro

• Fed Chair Jay Powell adopted a more hawkish tone, aiming for a faster unwind of monthly bond purchases, as well as acknowledging inflation as ‘persistently higher’.
• Eurozone November CPI inflation jumped at the fastest pace on record, hitting 4.9% against 4.1% a month earlier, as energy prices soared.
• US November non-farm payrolls fell way short of expectations at 210,000, after 546,00 the month before, while unemployment ticked down to 4.2%.

On the radar

• CPI inflation data from the US and China could highlight divergent trends in the world’s two largest economies.
• Markets will be watching closely, as scientists give more colour on the spread and the seriousness of the Omicron variant of Covid-19.