Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

BOOSTER jabs are breaking the internet (the NHS website anyway) but it’s inflation and interest rates that are front of mind for investors.

Three of the most important central banks show their hands this week. The Fed, of course, is the main one to watch, but the Bank of England and ECB will have an impact too.

Monetary policy

Last week’s inflation data in the US will surely have made up Jay Powell’s mind. Expect him to double down on the taper on Wednesday. Bond purchases will most likely be done and dusted by March. And that will open the door to US interest rate rises from next spring.

Here in the UK, there’s more uncertainty. The Bank of England said it was ready to push the button, but then Omicron came along. And a government in need of a distraction is in full red flag mode. So, there’s a good chance that interest rates will stay at 0.1% on Thursday.

As for the ECB, well they have been behind the tightening curve all along. Expect a cautious withdrawal of stimulus, if any.

Clearing the decks for Christmas

Elsewhere, there’s a flood of economic data this week, as desks are cleared for the holidays. Here in the UK, tomorrow brings jobs data, Wednesday is inflation day and then on Friday we get the latest retail sales numbers. All are likely to make the case for tightening even if Omicron forces the Bank to hold fire until the New Year.

Companies, too, are getting announcements out of the way before what is certain to be a very quiet couple of weeks either side of Christmas. Most interesting this week will be Ocado, which has seen its shares trace out an inverted V since the start of the pandemic. Up 172% between February and September last year, they have since fallen by 45% as people got back into the habit of going to the supermarket. Will online shopping look appealing again now?

Looking back at 2021

Being in the right place has mattered this year. Wall Street has soared, with the S&P 500 up 25% year to date, justified by strongly rising corporate earnings. Even stripping out inflation that’s a very healthy gain, building on the previous year’s pandemic rally. Elsewhere, it’s been more of a mixed bag. The FTSE 100 is up 13% since the start of the year. European shares are 10% higher. In Asia, though, it’s been more of a slog. Japan is less than 4% to the good this year and both China and emerging markets generally are under water.

That’s the backdrop to our fund recommendations for 2022. A continuing bull market for shares, inflation fears boosting traditional safe havens like gold and catch-up by the relative laggards in the UK and Japan (but still some caution on emerging markets). Read more on the 2022 fund picks here.
 

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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