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Market Update December Monday 13th 2021

Markets bounce back as investors reassess the risk of Omicron

Equity markets bounced back this week, as a combination of factors eased fears as to the likely impact of the Omicron covid variant. Data out of South Africa continued to suggest that the variant induces less serious illness versus previous covid strains, whilst Pfizer/BioNTech said that early trials show that a third vaccine booster shot is effective against Omicron. Despite this, whilst there remains some doubt as to the impact of the Omicron variant, some countries have tightened restrictions, with a corresponding impact on businesses, particularly within the leisure sector, leading to renewed weakness in markets towards the end of the week. All eyes are on the release of US inflation data later today, with expectations that inflation will have risen to 6.8% year-on-year in November, whilst weekly filings for unemployment benefits fell to 184,000 in the week to the 4th of December, the lowest level since 1969.

As of 12pm on Friday, London time, US equities rose 2.8%, having been within just 0.1% of their all-time high mid-week. Similarly, US technology stocks bounced by 2.9%. European stocks increased by 2.9% and UK equities rose 2.6%, however, sterling fell to USD 1.32, its lowest level in over a year. Japanese equities increased by 0.9%, Australian stocks were up by 1.6% and Emerging markets climbed 1.9%.

Government bonds give back

Government bonds gave back some of their near-term gains, with the yield on the 10-year US Treasury, which moves inversely to price, rising to 1.51%. There was a smaller move in German bunds and UK gilts, but nonetheless, prices fell, with yields now standing at -0.34% and 0.78% respectively.

There was a strong rally in crude oil prices, with Brent climbing by 7.5% to $75.1 a barrel and US WTI (West Texas Intermediate) rising by 8.2% to $71.7. Iron ore also increased by 6.5%, whilst copper, which has barely been troubled by concerns over Omicron in recent weeks, increased by 1.7% to $9,540 a tonne. Gold is now trading at $1,772 an ounce, a fall of 0.6% over the week.

Evergrande, the world’s most indebted property developer, defaults on bond interest payments

The world’s most indebted property developer, Chinese company Evergrande, defaulted this week as it missed a coupon payment on Monday, having failed to pay $82.5m to investors. Subsequently, the rating agency Fitch downgraded the company to “restricted default”. Although investors were reminded that it is far from the only Chinese property company in a precarious position, as Kaisa also failed to repay a $400m bond that matured on Tuesday. On Monday, the People’s Bank of China, unleashed $188bn of liquidity into the financial system in order to limit the risk of contagion.

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