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.
NO doubt about the main story this week. Omicron. What is it? How is it shaking markets? And what happens next?
Just when you thought it was safe….
If you thought we were over the worst, you were in good company. One thing investors had not priced in was the emergence of a new Covid variant. Omicron is already outpacing Delta in southern Africa.
What’s different about this new strain is the large number of mutations, particularly to the spike proteins that allow viruses to latch onto our cells. As a result, it will be days and probably weeks before we know how serious Omicron is and whether it can outwit the vaccines.
How have markets taken the new variant news?
The FTSE 100 bore the brunt, down more than 3.5% on Friday, although it’s bounced a bit today. Wall Street was off more than 2%, although Black Friday was a curtailed trading day and most decision makers were on holiday so the real impact will only unfold today. Asia caught up after the weekend with falls across the board.
Commodities were caught in the crossfire too. Oil fell by 10% on Friday as governments quickly started to make it more difficult to travel, even if you’re not planning a trip to one of the growing number of countries on the newly-reactivated red list.
What happens now with markets?
Well, it was not the start of the post-Thanksgiving Santa Rally that we all hoped for. Shares have risen in 25 of the past 30 Decembers here in the UK. It’s a brave call to bet on a 26th positive reading this time. But who knows? The markets are certainly looking oversold - just 21% of leading US companies are above their 20-day moving average. That’s at the low end of the recent range.
Much will depend on inflation expectations and the Fed’s response. More lockdowns and travel curbs and 6.2% could mark the peak for US prices. Also, if the market tumbles, the Fed will likely follow its 2016 and 2018 playbooks and hold back on tapering. Europe’s inflation data tomorrow will still reflect recent supply chain issues. Expect a 30-year high over 4%.
What else is on the radar of global markets?
Omicron may be the big story but there’s other news too. The stock market may have soared in the past 18 months, but new issues have not joined in the party. Half of all the IPOs so far this year are trading below their listing price. That compares with 33% a year on from 2019’s crop of flotations and 27% of 2020’s. Over-optimistic pricing is the likely culprit, as usual.
Meanwhile, if you think we’ve got it bad, spare a thought for Turkey. Interest rates may have been cut three months on the trot, but they still stand at 15% while inflation is heading towards 20%. Confirmation of that unenviable milestone is expected on Friday.
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. 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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