Market Review - November 2021

December 1, 2021

By Jan Faure

What a difference a week makes as a new coronavirus variant rattles markets.

Global markets declined as the emergence of a new coronavirus variant, Omicron, triggered fresh fears of an economic fallout. The November 25th announcement of its discovery triggered global panic and a sharp sell-off in markets in the final days of November. In Europe, the Euro Stoxx 50 index declined 4.4% while the UK’s FTSE 100 index retreated 2.5%.In Asia, Japan’s Nikkei 225 index weakened by 3.7% while Hong Kong’s Hang Seng index sank 7.5%. In the US, markets fared relatively well as tech stocks cushioned the blow. The S&P 500 index closed 0.8% lower for the month.

There is a lot of mixed messaging creating uncertainty, and uncertainty is the enemy of markets. While doctors have been calling Omicron symptoms mild (so far), Moderna's CEO, Stéphane Bancel, said current vaccines for Covid-19 will likely be much less effective against the new variant. He believes it could be months before pharmaceutical companies can produce vaccines at scale to counter Omicron. US president Joe Biden said the variant is a "cause for concern, not a cause for panic", while US Federal Reserve chairman Jerome Powell commented that the variant poses downside risks to the economy and adds to uncertainty over inflation.

Powell has recently said Fed officials will consider removing pandemic support at a faster pace to keep inflation in check. The most recent US inflation print was a 6.2% y-o-y increase and was the largest jump in US prices since November 1990. The latest US unemployment claims data showed the lowest reading since 1969, further supporting the Fed’s case to moderate stimulus measures. All the boxes have seemingly been ticked for a more hawkish stance on monetary policy, with the US economy on a stronger footing, the labour market strong and higher inflation more entrenched.

The Fed’s next policy meeting is on the 14thto 15th December, and by then there should be more information on the new coronavirus strain. Although it is still early days, the Omicron strain(and any variant for that matter) has the potential to throw Fed policy up the air. Already, if the drop in oil prices is sustained, it will have an impact on inflation although this could be offset if supply constraints worsen. The Fed is quite used to rolling with the punches and adjusting policy when required so there is a fairly high probability that things will play out differently to what market participants expect.

As the US gets more hawkish on monetary policy, Europe is less flustered with inflation trends. The European Central Bank’s Christine Lagarde has pushed back on any talks of interest rate hikes. The ECB is firm on the belief that inflation is transitory and expects inflation to peak in November before gradually falling back in 2022 (largely on base effects).

Brent crude oil prices fell 16.4% in November, with most of the decline coming in the final three days, as traders panicked that the new variant could dampen global energy demand. Traders fear that a return of travel bans could weaken fuel demand. President Biden had on the 23rd November announced the coordinated release of oil reserves by the US, India, China, Japan, South Korea and the U.K. This came after OPEC and allied non-OPEC producers repeatedly ignored US pressure to increase crude supply to halt surging fuel prices.

A lot is riding on news flow over the next few weeks as to the severity of the new strain and as the effectiveness of the current range of vaccines is analysed. With major equity markets having recently touched all-time highs, one feels there is an immediate downside risk to markets until there is more clarity on the Omicron strain. We should expect heightened volatility to persist as we enter a month characterised by lower trading volumes.

GLOBAL INDICATORS: Local reporting currencies

Source: Bloomberg,, S&P Dow Jones Indices
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