International Communique No. 316 – 30thNovember 2021


Market sentiment had already been dampened by the worsening pandemic in Europe and was likely to drive volatility upwards in the coming weeks. Then came the announcement of the new Omicron variant, which rocked the markets just as shoppers were streaming to the shops for Black Friday.

Several European countries had previously tightened their Covid-related restrictions. Then, after the announced arrival of the vaccine-resistant southern African variant, Germany, Italy and the UK were quick to react, banning all foreign travelers from South Africa from entry. Threatened by a wave of new restrictions, the travel sector saw red and stocks connected with the reopening of the economy plummeted, while the Covid beneficiaries saw their share prices increase. The VIX volatility index, known as the market’s fear gauge, shot up to 29%.

Inflation continues to be a concern. Some brass on the Fed policy committee have mooted the idea of pulling the plug on asset purchases and hiking rates sooner if inflation remains persistently high, according to minutes of their latest meeting.

A series of US macroeconomic indicators were also released ahead of the long Thanksgiving weekend, putting further upward pressure on inflation. Weekly jobless claims were situated at their lowest level in over 50 years, and strong momentum in household spending – which rose by 1.3% in October month on month – provided further encouragement to those expecting a faster tightening of monetary policy than is currently expected.

The Biden administration last week moved to counter the rising price of oil and put pressure on OPEC by tapping into strategic oil reserves. Previously, OPEC did not consider it necessary to increase output based on its view that supply was already more than sufficient.

In Switzerland, GDP rose in the third quarter (+1.7%), surpassing expectations, powered by a rebound in the services sector following the lifting of health-related restrictions before the summer. Economists forecast GDP growth of between 2.7% and 4% for 2021.

Those who expect a volatile end to the year, will be watching closely to see how the pandemic evolves. For the time being, equity market gains look intact and central banks are still on course to normalise their monetary policies. They will remain supportive in tandem with the resurgence of Covid cases but will also keep a close eye on inflation, which does not seem quite so easily tameable. Elevated household savings and the lack of viable alternatives are considerations which are likely to continue propping up equities.

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