It continues to be a volatile time for markets as the world continues to face growing Covid-19 cases. Central Banks have begun talking about controlling inflation, with the Bank of England raising key interest rates for the first time in more than three years.
Last week’s performance – major stock markets
| S&P 500 | -1.94% |
| Nikkei 225 | +0.38% |
| CSI 300 | -1.99% |
| Euro Stoxx 50 | -0.90% |
| FTSE 100 | -0.30% |
Commentary
US:‘Tapering’ and omicron fears spark volatility
The prospect of central bank tightening its support for the economy and fears over the impact of the omicron variant of the coronavirus sparked considerable volatility in stock markets. The Federal Reserve announced that it will speed up the removal of its support for the economy (known as ‘tapering’).Omicron fears appeared to grow later in the week especially as some Wall Street firms put new office restrictions in place in response to a surge in cases.
Japan:Investor sentiment boosted by US Central Bank decision
Investor sentiment was lifted by the Federal Reserve’s tapering decision, as many feel that the move signals confidence in the post-pandemic economy. Japan’s open market is highly leveraged to the global economic recovery.Although Japan’s economy has improved, it remains in a severe situation due to the impact of the coronavirus at home and abroad. While exports and industrial production have continued to increase, they remain weak because of supply-side constraints.
China:Covid-19 and US-China tensions weigh on markets
Chinese markets fell for the week amid the resurgence in global COVID-19 cases and U.S.-China tensions after Washington placed investment and export restrictions on dozens of Chinese companies for their role in allegedly repressing China’s Muslim minorities and in supporting Beijing’s military. In economic readings, data showed that China’s factory output grew faster than expected in November, but new pandemic curbs hit retail sales. In November, new home prices suffered their biggest month-on-month decline in six years.
Europe: Covid restrictions across the continent
Shares in Europe fell as governments tightened restrictions to curb the spread of the coronavirus and central banks became more hawkish (i.e. they turn their focus on controlling inflation). Many countries across Europe have increased social and travel restrictions as Europe faces a fresh wave of Covid cases. The European Central Bank signalled that any removal of support for the economy would be slowas the pandemic was again depressing business and consumer sentiment and threatening economic growth.
UK:Bank of England raises interest rates
The Bank of England raised interest rates to 0.25% as a first step to control inflation. Data released during the week indicated that inflation hit 5.1% in November—the highest level in a decade. The labour market also continued to tighten after the government ended the furlough scheme.Covid cases continue to rise across the UK, with health secretary Sajid Javid warning that there were “no guarantees” while dealing with a pandemic.