The numbers for the week – 29th November 2021

The numbers for the week – 29th November 2021

Markets last week

Last week turned out to be momentous for a normally quiet US Thanksgiving holiday week. On Friday, the announcement of the new B.1.1529 COVID-19 variant (dubbed “Omicron” by the World Health Organisation), predominantly found in South Africa but present in many other countries already, rattled markets and undermined risk appetite globally. Vaccine company BioNTech claimed that they would be able to map out the new variant and its vaccine partner Pfizer said that a new booster could be available within 100 days of sequencing the new variant.

Earlier in the week, President Biden re-appointed US Federal Reserve (Fed) Chair Jay Powell and nominated Dr Lael Brainard to the post of Vice Chair, with broad responsibilities for financial regulation and climate change issues, among others. This had the effect of pushing up government bond yields mid week, not just in the US, but across the developed world, as the Fed would be expected to raise interest rates faster under a Powell Chairmanship than under the other candidates, including Dr Brainard.

Economic data were generally positive during the week, but inflation was still the sore point for markets, against the backdrop of US GDP tracking estimates of 8.6% for the current quarter. This high growth will undoubtedly be under pressure from the omicron variant.

President Biden announced a release of 50 million barrels from the US Strategic Petroleum Reserve in a bid to keep oil prices down, but the immediate reaction was a sharp rise in oil prices.

All of these market movements during the week were taken back on Friday, after the new COVID-19 variant announcement. Government bond yields dropped across the whole of the yield curve, short and long term. Markets pushed back the expectation of a second Fed rate hike from 2022 to 2023. Equities took a massive tumble on Friday, with Europe worst hit. At the end of the week, European and UK small-cap shares lost the most whereas US and Japanese markets were more resilient. Although market indices were sold lock, stock and barrel by algorithmic traders, within equities, the reopening sectors (travel & leisure, hospitality) fared worst and generally cyclical areas (such as energy and banks) were badly hit, whilst information technology and healthcare were somewhat more insulated from the sell-off.

Defensive low-interest rate currencies, like the Japanese yen and the Swiss franc did better than traditionally risk-on higher-yielding currencies. Sterling was weak, falling both against the US dollar and the euro, as rate hike expectations from the Bank of England were being scaled back by investors. Oil prices collapsed and finished the week down 10% after hedge funds unwound many positions taken when the US government announced its sales from the Strategic Petroleum Reserve.

The week ahead

Tuesday: eurozone preliminary CPI and core CPI

Our thoughts: Europe is not normally where one expects to find inflation, but, this time round, it hasn’t been immune to the price surge. The eurozone CPI (consumer price index) and core CPI will be eagerly awaited for signs of sticky inflation which may get the European Central Bank (ECB) to change its über-dovish policy. Price rises have been hitting Germany more than other countries and there is therefore a political fallout from the ECB’s one-size-fits-all monetary policy. It seems that a large part of the inflationary pressures in Europe come from energy, with natural gas prices an outsize influence, so the difference between headline CPI and core (ex food and energy) will be scrutinised closely.

Wednesday: ISM manufacturing PMI (US)

Our thoughts: the ISM (Institute for Supply Management) manufacturing PMI has given markets a very accurate projection of the economic rebound we are currently witnessing in the US (from 2.1% growth in Q3 to upwards of 8% in Q4 according to forecasts). It has also highlighted the pressure points in the economy: prices, but also deliveries, new orders, inventories and backlogs. The November ISM survey will therefore be analysed with a fine-tooth comb for further signs of the recovery extending, picking up or stalling. Also, the issue of bottlenecks may be easier to understand by examining the answers provided by hundreds of companies on the issues they are facing: new orders compared to client inventories could be a leading indicator of future growth and inflation.

Friday: US employment data for November

Our thoughts: once again, employment numbers have a chance to move markets but also to influence the Fed (US Federal Reserve) before its December meeting during which it is possible that they may discuss accelerating the tapering of their asset purchases. If half a million new jobs keep being created every month in the US, regular as clockwork, then the Fed will be able to visualise future job creation and hence inflationary pressures. It’s not only the non-farm payrolls data that will matter, however: the labour force participation rate, average weekly hours worked and average hourly earnings will help complete the picture of employment availability or tightness.

Markets for the week

In local currencyIn sterling
IndexLast weekYTDLast week
FTSE 100-2.50%9.00%-2.50%
FTSE 250-4.10%10.00%-4.10%
FTSE All-Share-2.80%9.40%-2.80%
US Equities-2.20%22.30%-1.30%
European equities-6.10%15.10%-5.20%
Japanese equities-2.90%10.00%-1.20%
Hong Kong equities-3.90%-11.60%-3.10%
Emerging Markets
Emerging market equities-3.60%-5.30%-2.70%
Government bond yields (yield change in basis points)
Current levelLast weekYTD
10-year Gilts0.83%-563
10-year US Treasury1.47%-756
10-year German Bund-0.34%123
Current levelLast weekYTD
Japanese yen/USD113.380.50%-8.90%
Commodities (in USD)
Current levelLast weekYTD
Brent oil (bbl)72.72-7.80%40.40%
WTI oil (bbl)68.15-10.40%40.50%
Copper (metric tonne)9460-1.90%21.80%
Gold (oz)1802.59-2.30%-5.00%

Sources: FTSE, Canaccord Genuity Wealth Management

Central banks/fiscal policy

Powell’s reappointment leads to expectations of faster Fed rate hikes

President Biden re-appointed Powell as Chair of the US Federal Reserve (Fed), ending a long period of uncertainty and speculation. Biden also nominated Lael Brainard for Vice Chair, where she will have more responsibility than just financial regulation. Markets reacted sharply, projecting almost three rate hikes next year, although this was softened later on, in particular on Friday in light of the new omicron variant.

The Fed minutes for the last meeting were published and showed the willingness to accelerate the tapering of asset purchases to give itself leeway to raise rates sooner. The complication will arise from the upcoming mid-term elections next year in November. Traditionally, the Fed refrains from raising rates shortly before elections.

The People’s Bank of China (PBoC) dropped language in its statement that precluded policy accommodation, a roundabout way of giving an easing message to the markets.

United States

Higher PCE inflation, record low job losses and solid surveys: the US economy is doing well

Housing: existing home sales rose 0.8% in October. New home sales disappointed, up 0.4% for the month but at 745K vs. 800K expected. MBA mortgage applications rose 1.8% during the week vs. a drop of 2.8% the preceding week.

Consumer: consumer spending is diverging from consumer sentiment. Inflation-adjusted consumer spending was up 0.7% in October. Personal saving is also falling and with a cumulative pandemic US saving of almost US$2.4trn, this provides good support to spending.

Industry: core capital goods orders rose 0.6% in October.

Surveys: the Chicago Fed National Activity Index surged, up from -0.18 to +0.76. It tends to hover around 0, so this is a strong number. The Markit manufacturing PMI edged up from 58.4 to 59.1 whilst the services PMI eased from 58.7 to 57.0. The Richmond Fed manufacturing index was a smidge softer at 11 vs. 12. Consumer sentiment remained weak at 67.4 vs. 66.8 in the University of Michigan survey (with expectations rising against flat current conditions).

Inflation: PCE (personal consumption expenditures) inflation went up, but both the headline and core readings stayed within expected ranges, headline at 5.0% vs. 5.1% estimate and core at 4.1% as forecast. The latter is the Fed’s inflation gauge. Although the monthly core number rose to 0.43% from 0.25%, it is still lower than the peak April to June readings. Despite evidence of some improvements to bottlenecks, supply chain issues are still hitting goods prices, with the chain price index for goods in the PCE up to 7.5% year-on-year. University of Michigan survey inflation expectations are still elevated, near 5% for one year and at 3% for five years.

Employment: US weekly jobless claims dropping to 199,000 are indicative of a broader package of improving US economic data now. The claims number is the lowest since 1969, probably due to the incentive to return to the labour market as pandemic-related income transfers have ceased altogether. Continuing claims came down 60K to 2.05 million.

United Kingdom

Strong UK data

Surveys: the Markit manufacturing PMI increased from 57.8 to 58.2 but the services PMI was slightly softer at 58.6 vs. 59.1, both very high levels anyway.

The CBI Trends series was much better, with total orders rising from 9 to 26 and selling prices from 59 to 67, although the selling prices reading is the highest since 1977! CBI Sales surveys were also stronger, with the Retailing Reported Sales rising from 30 to 39 and Total Distribution Reported Sales from 27 to 43.


Mixed surveys and imported inflation

Surveys: the eurozone Markit manufacturing PMI rose from 58.3 to 58.6 and the services PMI jumped from 54.6 to 56.6. The eurozone consumer confidence for November fell from -4.8 to -6.8.

The German IfO business climate index dropped from 97.7 to 96.5, mostly due to the impending reimposition of a national lockdown and soaring inflation. Also, in Germany, the GfK consumer confidence survey dropped from +1.0 to -1.6.

French consumer confidence remained unchanged at 99.

Money Supply: M3 money supply rose 7.7% in October year-on-year, up from 7.5% the previous month.

Inflation: the German import price index surged 3.8% in October for a massive 21.7% year-on-year growth.


Japanese statistics starting to look better

China: industrial profits rose 24.6% year-on-year in October, up from 16.3% the previous month.

Japan: the Jibun Bank manufacturing PMI rose from 53.2 to 54.2, the highest since the series began almost three years ago, with the services PMI also stronger at 52.1 from 50.7.

The Leading Index CI rose from 99.7 to 100.9 whilst the coincident index edged up from 87.5 to 88.7.

Retail sales rose 1.1% in October after 2.8% the prior month, with the year-on-year growth at 0.9% compared vs. -0.5%.

Oil/Commodities/Emerging Markets

Oil markets are stronger than the US government

President Biden’s efforts to keep the oil price under control backfired spectacularly, as he announced the release of 50 million barrels of crude from the US Strategic Petroleum Reserve and the prices of both WTI and Brent rose significantly. On Friday, however, both the WTI and Brent crude price gauges fell more than 10% to end the week down in double-digit territory for Brent.

Gold took a breather during the past week as bond yields continued to rise and expectations of central bank rate hikes grew and then on Friday, as the new COVID-19 variant hit markets, gold recovered to end the week down 2% only.

Sign up for the latest market updates, financial insights and advice.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2022 Benjamin Sharvell