Global risk assets started the month in a positive mood on the back of encouraging fundamental macroeconomic and company-specific data. Sentiment quickly reversed mid-month, however, with the emergence of a new COVID variant (‘Omicron’), first identified in South Africa and which early indications suggest is a more transmissible and potentially more harmful strain. At the end of the month Federal Reserve (‘FED’) Chairman Jerome Powell’s comments hint at a faster rate of asset purchase tapering, whilst at the same time conceding that current inflationary conditions are likely not transitory caused markets to fall further. Against this backdrop global developed market equities finished the month down 2.2% as measured by the MSCI’s World Index whilst their emerging market peers declined considerably further, losing 4.1% as per the MSCI’s comparable emerging market gauge (both from a US Dollar perspective).
US equities outperformed the broader market trend in November, with a continuation of the robust third quarter earnings season providing support, whilst labour market data and consumer spending statistics also proved supportive. FED chairman Powell was reappointed to a second four year term over the course of the month, while his more hawkish comments at the tail end of November in response to October’s CPI print of 6.2% (a 31-year high) exacerbated the fall in risk assets in the second half of the month that the identification of the Omicron COVID variant had caused. The S&P 500 Index ended the month down 0.7%.
In Europe constraints have been reintroduced in an endeavour to slow the spread of the new variant of the COVID virus, weighing on growth expectations and market sentiment in the region. Growth had rebounded somewhat after some softer data of late with the reading of 55.4 the November Purchasing Managers Index (‘PMI’) marking the first increase in business activity since July and well above the 53.2 forecast. Price data pointed to a year-over-year inflation rise of 4.9% in November, indicating the highest level since the introduction of the Euro. The MSCI Europe ex UK Index declined 2.5% in local currency terms over the course of the month.
It was anticipated that the Bank of England (‘BoE’) would raise interest rates at its November Monetary Policy Committee (‘MPC’) meeting which, surprisingly to most market participants, was left at 0.1%. However, with October’s CPI print of 4.2% (a 10-year high) exceeding the Bank’s own forecast of 3.9%, the overwhelming expectation is for the BoE to increase interest rates at the December meeting. The buoyant UK employment market persisted, alleviating concerns of a pause as the government’s furlough scheme came to an end. The FTSE All Share contracted 2.2% on a total return basis.
Fears over the Omicron variant and the subsequent implications to societal restrictions led investors to a flight to safety and sovereign bond yields rallied. The UK was the best performing market, the Bloomberg Barclays Government Bond Index returning 3.1% in GBP terms, as investors were also buoyed by the BoE not hiking interest rates as anticipated. Meanwhile, Emerging Market Debt posted a negative return of -1.4% and High Yield indices were also negative, with both Euro and US benchmarks contracting in November: the BofA/Merrill Lynch HY Constrained US and Euro indices fell -0.5% and -1.0% respectively in local currency terms.
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