Our latest monthly investment update for December 2021 looks at how the global investment markets, economy, and commodities perform.
The FTSE 100 index of leading UK company shares closed at the end of November at 7,079.01 points, down 158.56 points or 2.19% during the month.
Markets fell towards the end of November on fears that the new Omicron variant of Covid-19 would result in slower economic activity.
The downturn in investor sentiment was prompted by comments from vaccine maker Moderna, who said their vaccines are unlikely to be as effective against the Omicron variant as they were against the Delta strain.
However, there was a more positive tone from Pfizer and BioNTech, suggesting that any new vaccine could be quickly modified to cope with new variants.
The University of Oxford also said there was no evidence existing vaccines would not prevent severe disease from Omicron. Still, it was also prepared to rapidly update its vaccine (developed with AstraZeneca) as needed.
Economic think tank the Organisation for Economic Co-operation and Development (OECD) has warned that the Omicron variant could force western governments to introduce new emergency support for businesses and individuals if it leads to a significant global slowdown.
The OECD warned that a renewed wave of the pandemic could add to the existing strain on the global economy caused by persistently high levels of price inflation.
If Omicron proves to be more transmissible than other variants, or more resistant to existing vaccines, it could further disrupt global supply chains and force price inflation even higher for a longer period of time.
US supply chain crisis and rising cost of living
In the US, President Joe Biden said the economy is in a strong position due to action taken by the government to address the supply chain crisis and the rising cost of living. He forecast an easing of recent price inflation pressures and said the US economy is heading into the Christmas season “on very strong shape” due to government measures.
A new poll of equity analysts found they believe global stocks will rise during the next 12 months but at a more moderate pace than the rally experienced this year.
The Reuters poll also found a majority believe that an equity market correction was likely during the next six months. Three-quarters of the analysts surveyed said a correction in their local equity market was likely.
UK House Prices
UK house price growth remained strong in November, ahead of market expectations. The latest data from lender Nationwide found that average prices in November were 10% higher than a year earlier, with an average UK property value of £252,687.
Average prices rose 0.9% in November compared to a month earlier, ahead of predictions of a 0.5% rise.
Robert Gardner, Nationwide’s chief economist, said: “House prices are now almost 15 per cent above the level prevailing in March last year when the pandemic struck the UK.”
In the latest official data release, price inflation in the UK surged ahead to 4.2% in the 12 months to October 2021. The Consumer Prices Index (CPI) measure of price inflation rose from 3.1% a month earlier.
Despite rising prices, the Bank of England’s Monetary Policy Committee (MPC) voted last month to keep interest rates on hold at 0.1%, despite widespread market expectations of a rate hike.
While financial markets believed the MPC would hike rates at their next meeting in mid-December, the emergence of the Omicron Covid-19 variant has now reduced the prospects of this happening.
Oil-producing nations are meeting later this week to decide whether to increase or reduce their supply, following volatility in the oil and a release of stocks in the US. Oil prices fell to almost $70 a barrel at the start of the month, down from their three-year highs of $86 a barrel in October.
OPEC and its allies are in conflict with the US, which wants them to raise output to help support the recovering global economy. But oil producers do not want to create a glut of oil that could damage the already fragile energy sector.
The benchmark 10-year government bond (gilt) yield fell during November, reaching 0.843% at the start of December as investors fled to safety due to Omicron fears.