Archinomics Weekly 13.12.21

Equities

US equity markets touched new record highs, led by the tech sector, as Apple neared a valuation of $3 trillion. European markets rallied, as fears over the Omicron variant subsided. In Japan markets moved up, after Prime Minister Kishida outlined plans for a new economic era. Chinese markets bounced strongly as the central bank cut reserve requirements for the banking sector.

Bonds

US Treasury markets were unfazed by inflation data and yields fell as prices rose towards the end of the week. Core Eurozone bond yields, however, ended higher. US credit markets saw generally strong demand for new issuance, although spreads over government bonds widened towards the end of the week.

Currencies

The euro traded narrowly against the US dollar, as markets awaited central bank statements. The yen weakened in anticipation of accelerated tightening of US policy, while the Chinese renminbi passed a three year low against the dollar.

Commodities

The oil price bounced back, as fears over the demand impact of Omicron subsided.

Responsible investing

The German coalition government, which includes the Green Party, was voted into power. The Greens have long opposed the Nord Stream 2 gas pipeline from Russia and could press for sanctions regarding Ukraine.

Macro

• US November headline CPI inflation came in at 6.8%, the highest level since 1982, while the core CPI reading jumped by 4.9%.
• Japan Q3 GDP came in at -3.6%, pulled down by falling consumer spending in the face of a surge in Covid cases.
• China November CPI advanced to 2.3% from 1.5%, while the PPI recording factory gate prices remained elevated at 12.9% year on year.

On the radar

• Central bank meetings will provide the focus, with any change in rhetoric on interest rate policy from the US Federal Reserve carefully analysed.
• Developments regarding the rapid spread and severity of the Omicron variant will be closely watched by the markets.