What’s happened in markets?

FTSE All Share 1.03 -1.52 -0.96 14.00 14.19 5.30 5.81
Euro Stoxx 50 -0.19 -5.22 -2.44 17.80 19.02 11.55 9.62
S&P 500 -1.18 -2.46 0.41 22.43 25.53 19.67 17.80
Japan Topix -1.36 -3.63 -2.04 10.66 12.64 7.55 8.20
MSCI Asia Pac. -0.54 -2.64 -6.47 -5.07 -0.79 10.31 11.22
MSCI Emerg. Mkts. 0.20 -2.87 -6.46 -3.18 1.20 9.20 10.35
Jo’burg All Shares 3.30 3.35 7.97 24.09 25.19 14.74 11.19
UK Gov’t Bonds 0.65 4.05 1.55 -2.28 -0.22 4.75 3.31
US Gov’t Bonds 0.62 1.34 0.11 -1.42 -1.16 5.09 3.26
Global Corp. Bonds 0.66 0.71 -0.30 -0.24 0.31 7.04 5.08
Emerg. Mkt. Local 0.76 -1.14 -5.87 -8.76 -7.22 2.68 3.70

Figures in the respective local currencies as at the end of trading on 3/12/2021.

The many unknowns around the Omicron variant of COVID-19, including its severity and its response to vaccines, triggered wild market swings during the week of 29 November. There were spikes in the Vix index – a common indicator of market volatility – while riskier assets saw a decline.

Although dominated by pandemic-related uncertainty, the week brought further positive news for the labour market. Unemployment rates fell to post-pandemic lows in the Euro area (7.3%) and the US (4.2%). Purchasing managers’ index data in developed markets also continued to gain momentum suggesting that the outlook will continue to improve.

In the US, the government shutdown was averted by the passing of a short-term funding bill. The next battle will be to raise the US debt ceiling, so that the Democrats can attempt to pass their $1.75tn Build Back Better Act.

The persistence of inflation was acknowledged by Federal Reserve chair Jerome Powell as he told Congress it might be time to retire the term ‘transitory’ to describe the current inflationary outlook. This could signal a faster tapering of bond purchases and, potentially, interest rate hikes. However, members of the Bank of England’s monetary policy committee urged caution on interest rate changes until the impact of the COVID-19 Omicron variant becomes clearer.

The headline-grabbing news in the corporate world was Jack Dorsey’s decision to resign as Twitter CEO. He had previously resisted pressure from activist investors to do so. The company’s performance has lagged behind that of its peers: while Twitter stock has risen 67% since Dorsey’s return as CEO in 2015, stock in Meta has climbed by 260% over the same period.

OPEC+ surprised markets by announcing it would continue to grow oil production as planned, despite the latest pandemic developments. It will produce an additional 400,000 barrels a day from January 2022. However, OPEC+ added that it could adjust this plan in response to a global drop in demand, if Omicron hits travel and trade. Markets are already pricing in a reduction in demand, causing oil prices to fall for a second consecutive week.

With firm data yet to emerge on Omicron’s ability to evade vaccines and its likely effect on the course of the pandemic, markets were unsettled. The response was a classic ‘flight to safety’ that benefited government bonds. Small capitalisation stocks were worst hit, losing 7.4% in 30-day returns, compared with a 3.4% hit for large capitalisation stocks. At a sector level, IT stocks were most resilient (-0.6%) while financial stocks were worst hit (-6.0%).

Latest Consensus Forecast
UK GDP (QoQ) 1.3
UK PMI 57.6
UK CPI (YoY) 4.2
EU GDP (QoQ) 2.2 2.2
EU PMI 55.4
EU CPI (YoY) 4.9
US GDP (QoQ) 2.1
US PMI 69.1
US CPI (YoY) 6.2 6.7

What’s happened in portfolios?

Given the market’s tilt to less risky assets, our bias for mid and small capitalisation stocks has held back performance slightly. However, this has been partially offset by our preference for UK equities, which have outperformed other markets recently.

Despite volatility in fixed income assets as a whole, our high yield holdings have remained robust.

Similarly, our real assets have performed well due to their bias to quality, delivering the inflation protection we would expect.

In alternative strategies, KKV Secured Loan Fund held its AGM during the week, with all resolutions passed. We voted in favour of an incentive plan that will further align the board, employees and consultants with the interests of shareholders. The company is now known as SLF Realisation Fund Limited.

What’s happening this week?

07 Dec • EU Gross Domestic Product Growth Rate | 10 Dec • US Consumer Price Index (November) | 10 Dec • UK Gross Domestic Product (October)