November ended with markets dominated by rising Covid infections and hospitalisations in parts of Europe and the emergence of the new Omicron variant. Having started the month well, developed market equities ended the month down 2.2%.
The alarming rise in Covid hospitalisations has so far been limited to parts of Northern Europe but has resulted in increased restrictions coming into force almost daily. The UK, that remains ahead of the EU with its vaccinations and booster programme, has introduced less strict measures.
It is still unclear if Omicron will reduce the effectiveness of existing vaccines and this is the key issue to monitor over the coming weeks. Even if vaccines are not as effective against Omicron there is confidence from drug companies new vaccines could be available in a matter of months – so if current vaccines are not effective it is unlikely markets would react as they did before when no vaccines were available at all.
November also held the UN Climate Change Conference (COP26) where leaders from around the world met to limit global warming to less than 1.5°C. Despite announcements falling short of expectations, climate change turned out to be one of the areas where the US and China agreed to work together, which is significant progress.
The weeks in November before the Covid crunch produced encouraging economic news with the key indicator of Purchasing Managers Index (PMI) increasing 1.2 points in October and generally better than expected predictions for most countries.
In regional terms, US equities were this month’s winners. The main market climbed 2.9% (4% for the US technology sector), although Powell’s reappointment for a four-year term as Fed Chairman along with the US Federal Reserve meeting later in the month gave markets further reason to expect some attempt to tighten monetary policy in December on the back of prospects of slowing progress in the labour market and growing supply-chain disruptions. The European Central Bank (ECB) has followed the Fed’s earlier stance in indicating a change to bond buying sometime in the future but reassured that those changes won’t come too soon.
The UK equity market ended the month with a -2.2% decline, in line with Europe equities, which also dropped -1.7%. However, the lower impact of the latest Covid-19 wave in the UK increased consumer confidence in contrast to the rest of Europe. Elsewhere in Europe, Germany revealed a new government – the SPD, the Greens and the Free Democratic party formed a coalition agreement with ambitious climate targets.
Emerging Markets equities dropped -0.6%. China saw indications of policy easing from the People’s Bank of China, which was a positive sign for the region as this counterbalanced losses driven by other markets. Finally, oil prices also closed the month in red at -14.3% as rising COVID cases raised concerns over potential disruption to demand.
Going forward we expect monetary policy will gradually tighten into 2022 but all comments from central banks appear to show a gradual normalisation process with monetary and fiscal policies staying accommodative. For the remainder of the year the risk, but also opportunity, remains focused around Omicron and we should know by the end of the year whether the Covid Christmas variant will disrupt what would otherwise be a positive economic outlook.
Asset class returns at 30th November 2021
Important Information
The text is taken from The Tatton Weekly and is provided by Tatton Investment Management. The information in this document does not constitute investment advice or a recommendation for any product and investment decisions should not be made on the basis of it.
Tatton is a trading style of Tatton Investment Management Limited, which is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 733471. Tatton Investment Management Limited is registered in England and Wales No. 08219008. Registered address: Paradigm House, Brooke Court, Wilmslow, Cheshire, SK9 3ND.
