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Handelsbanken have summarised the latest economic news after a busy week of data for financial markets to digest.
Omicron variant peaked?
There are signs that the spread of the Omicron variant may have peaked in the UK (particularly in London), and the UK economy is beginning to show signs of improved resilience when it comes to dealing with the COVID-19 virus. Last week, economic growth data (GDP) for November was released, and showed that the economy grew by 0.9% in the penultimate month of the year, even as the Omicron outbreak was emerging. The subsequent rollout of vaccine boosters and the avoidance of another lockdown should have benefited economic health over the festive period too.
China continues zero tolerance approach to virus
In sharp contrast to the UK’s ‘learning to live with it’ approach to COVID-19, China continues to take a zero tolerance approach to the virus, with millions of people and many cities under full lockdown once more. The ensuing lack of natural immunity could mean that Omicron causes much more disruption in China than in other leading nations. This could be further exacerbated by China’s use of a vaccine with much more limited efficacy than those in common use among its global peers.
US inflation hits 39-year high for December
Inflation figures remained firmly fixed in the spotlight last week. US consumer prices (CPI) for December hit a 39-year high versus the same period in 2020; however, versus the previous two months (October and November 2021) the data pointed to signs of slowing. Meanwhile, the latest US producer price inflation data showed signs of pricing pressures beginning to ease off. Some of the key factors pushing inflation higher (like gasoline prices) are also coming down from their recent highs.
We continue to believe that inflationary pressures are (or are close to) peaking. This would be helpful for riskier asset types like shares, least not because it detracts from suggestions that the US central bank needs to speed up its interest rate raising plans. A lower interest rate environment is usually helpful for share prices, as it allows businesses to finance their operations more cheaply and improves the potential for future earnings
Weekly market moves
- Most global stock markets were weaker in sterling terms, though the UK and emerging markets delivered positive performance.
- Bonds had a better week, despite the release of mixed inflation data.
- Commodities held on to their early position as 2022’s best performing asset class so far.
What to look out for this week
- The latest ‘corporate earnings season’ picks up the pace this week, with many of the world’s largest companies reporting their results and delivering their outlooks for the future.
- UK consumer inflation data (CPI) for December will be released – the last before the next Bank of England policymaker meeting in early February.