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December 2021 Astute Investment Commentary

Concerns about the new Omicron variant dominated the markets throughout November. The sharp rise in hospitalisations has so far been limited to parts of Northern Europe, whilst the UK numbers have not been rising at such an alarming rate. The severity of the Omicron strain is still unknown, but even in a worst-case scenario, drug companies are confident they can produce a new vaccine within 3 months, and the recently UK approved antiviral medication should help to reduce further hospitalisations. This caused concern for long term growth, which led to yields falling and government bonds outperforming equity markets. In the US, CPI jumped to 6.2% year-over-year in October, its highest reading in 31 years. The current policy plan is for tapering to end in June 2022, but several Fed members, including Powell, have talked about speeding up tapering, but uncertainty around Omicron could now make that less likely in the near term. Economic momentum remained strong in the UK thanks to the fact it has so far been less affected by the latest Covid-19 wave. Gilts rallied on the back of the Bank of England’s decision to keep rates on hold in November and on concerns that Omicron could further delay rate rises. In the next few weeks, we should know to what extent the Omicron variant will disrupt an otherwise positive economic outlook.