Fear of new lockdowns

For the month as a whole, the US S&P 500 Index fell by 0.7 per cent measured in USD and the European Stoxx 600 Index dropped 2.5 per cent measured in EUR, while the Nordic VINX Index rose by 1.9 per cent measured in NOK. Here in Norway, the Oslo Stock Exchange Benchmark Index (OSEBX) fell by 1.0 per cent.

China fears and rising interest rates

The new omicron variant led to fears of increased infection and to the markets dropping. So far, new measures have been introduced in Austria and the Netherlands, for example, but it is too early to say the extent to which any new lockdowns will be imposed. The important issues for the market are the invasiveness of any such measures, their effect on the economy, and any counter-measures implemented to stimulate the economy.

«Transitory» to be shelved

So far, the US central bank (FED) is saying it wants to speed up the tapering of its support purchases in the securities markets. The reason for this is allegedly that inflation does not seem to be falling as quickly as expected, and FED Chair Powell hinted he would shelve the concept of «transitory». He envisages an increase in the tapering from USD 15bn to USD 20bn per month, so that the asset purchases will stop in six months’ time.

Strong labour market

Apart from inflation, the FED also has a target of full employment. Unemployment, which is now at around 4.2 per cent in the USA, is expected to fall to 3.5 per cent next year. This would be below the pre-pandemic level. A strong labour market means rising wage growth, a factor that may weigh against the more temporary effects of inflation, such as commodity prices rising from low levels.

The road ahead …

The still strong economy means good earnings for companies and thus backing for shares as an asset class. Despite a more normal monetary policy, the alternative yield in the fixed-income market continues to be low.

From a commercial point of view, if Christmas did not exist it would be necessary to invent it.

Katherine Whitehorn