Investors across global markets were set for lots of reactions during the week. On top of the list was the Omicron variant of the coronavirus and the massive lockdowns which various countries have imposed, also with the travel restrictions. Cruise and commercial airlines stood out to be the most hit.
The United States.
In a volatile week of trading on global markets, the major equity indexes pulled back on news that the Federal Reserve could curtail its monthly asset purchases at a faster rate and fears that the emergence of the omicron strain of the coronavirus could weigh on global economic growth and contribute to supply chain disruptions. Large-capitalization stocks outperformed smaller- and mid-cap benchmarks. Within the S&P 500 Index, the communication services sector gave up the most ground. Utilities was the only sector to post gains.
Fed Chair Jerome Powell acknowledged in testimony before Congress that inflationary pressures, while still expected to abate over the next year, had become broad enough and remained elevated for long enough that the central bank may consider accelerating the pace at which it tapers its monthly bond purchases. The market appeared to interpret this development as potentially moving forward the timeline for the Fed to begin increasing short-term interest rates. Powell also cited the uptick in the number of COVID-19 cases and the emergence of the omicron variant as possible catalysts for further supply chain disruptions as well as potential headwinds to the economic recovery and the labor market’s gradual rebalancing.
Nonfarm payrolls increased by 210,000 sequentially in November—well below the 546,000 positions added in October and less than half of analysts’ consensus estimate. However, the Bureau of Labor Statistics also revised its estimate of the number of jobs created in October to 546,000 from 531,000 and the September increase in nonfarm payrolls to 379,000 from 194,000. The unemployment rate improved by four-tenths of a percentage point relative to October, falling from 4.6% to 4.2%. Average hours worked also ticked up. Albeit disappointing, markets seemed to view the deceleration in job creation as unlikely to shift the Fed’s plans regarding its asset purchases and monetary policy.
Shares in Europe posted mixed results after a volatile week of trading, highlighted by concerns about the omicron variant and further evidence of inflationary pressures. In local currency terms, the pan-European STOXX Europe 600 Index ended 0.28% lower, while Germany’s Xetra DAX Index gave up 0.57%. France’s CAC 40 Index rose 0.38%, and Italy’s FTSE MIB Index gained 0.33%. The UK’s FTSE 100 Index advanced 1.11%.
Core eurozone bond yields fell, as negative headlines concerning the omicron variant outweighed hawkish comments from Federal Reserve officials. Peripheral eurozone bond yields ended the week broadly unchanged. UK gilt yields fell, broadly tracking core markets. Furthermore, Bank of England Monetary Policy Committee member Michael Saunders indicated that he could vote against a rate hike this month given the uncertainties surrounding the omicron variant, which also applied downward pressure on yields.
Inflation in the eurozone accelerated to its highest level since the single currency was introduced in 1999. Consumer prices rose an annualized 4.9% rate in November, up from 4.1% in October, as energy costs surged. In Germany, annual inflation climbed to 6%—the highest level since 1992. Isabel Schnabel, a senior European Central Bank official, asserted in a television interview that “November will prove to be the peak” for inflation in the country and that “there is no evidence to suggest that inflation is spiraling out of control.”
Euro area retail sales rose 0.2% in October, after dropping 0.4% in September, as consumers spent more on nonfood purchases, Eurostat data showed. Meanwhile, consumer sentiment weakened for a second consecutive month in November, according to a survey by the European Commission. Households are less upbeat about the general economic situation and their intentions to make major purchases.
Chinese stocks recorded a weekly in contrast to major global markets despite a resurgence of U.S.-China tensions after Chinese ride-hailing app Didi said it would delist its U.S.-listed shares from the New York Stock Exchange. The CSI 300 Index rose 0.84%, and the Shanghai Composite Index added 1.2%. News of Didi’s delisting came shortly after the U.S. Securities and Exchange Commission said that Chinese companies that list on U.S. stock exchanges must disclose whether they are owned or controlled by a government entity and provide evidence of their auditing inspections.
Yields on China’s 10-year government bonds jumped to 2.926% from 2.881% the previous week, tracking the rise in U.S. Treasury yields after Federal Reserve officials signalled that there could be a quicker end to the U.S. central bank’s monthly bond purchases. The yuan strengthened to 6.3718 per U.S. dollar from the prior week’s 6.3917 per dollar, tracking the stronger midpoint rate set by China’s central bank. The People’s Bank of China allows the exchange rate to rise or fall 2% from the midpoint rate it sets each morning.
Japan’s stock markets registered losses for the week, in line with other global markets, with concerns about the spread of the omicron variant of the coronavirus and the country’s decision to close its borders to foreign nationals weighing on sentiment. The Nikkei 225 Index fell 2.51% and the broader TOPIX Index was down 1.37%. The yield on the 10-year Japanese government bond fell to 0.05%, from 0.07% at the end of the previous week, primarily on safe-haven demand, while the yen was broadly unchanged from the prior week at JPY 113.3 against the U.S. dollar.
In a major reversal of policy, Japan became the second top global market to close its borders to foreign nationals—except for those with special permission to enter—citing the emergence of the omicron variant of the coronavirus. (In November, Japan eased its strict coronavirus-related entry rules, letting foreigners visit the country for short business trips, study abroad, and technical training.) Prime Minister Fumio Kishida announced the border closure on November 29, and it came into effect the following day, which was when the first infection of the omicron variant was confirmed in Japan.
Industrial production rose 1.1% in the global market in October from the previous month, with the motor vehicle industry the largest contributor to the increase. The unemployment rate unexpectedly edged lower, to 2.7% in October, amid labor market tightness, while October’s 1.1% month-on-month rise in retail sales likely reflected a recovery in demand following the easing of coronavirus restrictions.
Other Key Global Markets.
- Chile – Chilean stocks, as measured by the S&P IPSA Index, pulled back by about 4.6% compared to other global markets. On Tuesday, a mixed, 10-member congressional committee voted 6 to 4 to return the revised pension withdrawal legislation—the fourth since the beginning of the pandemic—to both houses of the legislature for a final vote. The Chamber of Deputies failed to pass the bill on Friday: It fell four votes short of the 93 needed to reach the required three-fifths majority.
- Turkey – Turkish stocks, as measured by the BIST 100 Index, returned about 7.5%. The Turkish equity market performed well in local currency terms, as various world markets were pressured by news of the new omicron variant of the coronavirus, as well as concerns that the U.S. Federal Reserve may consider tapering its asset purchases at a quicker pace. The lira, however, continued to slide, as President Recep Tayyip Erdogan removed Treasury and Finance Minister Lutfi Elvan from his post and spoke in defence of what he called Turkey’s “new economic model.” The lira weakness prompted the Turkish central bank to intervene in the currency market.