Bassanese Bites: COVID Concern – November 22 2021

Global markets

It was a mixed week for global equities with ongoing inflation and interest rate concerns countered somewhat by rising COVID cases in Europe and the United States. Wall Street was pleased to see a strong October U.S. retail sales report, but less happy with hawkish comments by a few Fed members suggesting bond tapering should be accelerated. Against this backdrop, risks to growth from a re-acceleration in COVID cases might not be so bearish, to the extent this helps contain bond yields and downward pressure on equity valuations. What is clear is that any re-emergence of COVID concerns will support the technology/growth sectors over the financial/energy/value sectors of the market. It is also bullish for the $US.

In terms of the week ahead, we’re likely to get further reports on a strong U.S. economy and simmering cost pressures with the release of key manufacturing and service sector surveys along with the private consumption expenditure deflator (PCED). The core PCED is expected to rise 0.4%, pushing annual growth to 4.1% – or levels not seen since the early 1990s. While the headline manufacturing and service sector indices are likely to be strong, markets will be hoping for signs of easing in pricing pressures and order backlogs.

In terms of COVID, focus will be on the extent to which larger European economies – such as Germany – potentially go back into lockdown, following Austria’s shock decision to do so last week. While rising COVID cases are unlikely to cause renewed lockdowns in the United States, it does pose the potential to dent consumer spending once again. As noted above, however, at least from an economic perspective some cooling in the hot U.S. economy might not be such as bad thing!

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