Affinity Market Commentary – December 2021

GLOBAL MARKETS

New COVID-19 variant hurts both developed and emerging markets Oil & commodities fall, reversing earlier course

US MARKETS

Hawkish comments by the fed affect the markets
The Federal Reserve’s Jerome Powell’s hawkish comments on faster tapering caused a loss of momentum to the long US market rally, with some intra-day moves exceeding 3.6% on the announcement. It seems the Fed remains focused on the higher-than-expected inflation numbers, and less on the effects of the new COVID-19 variant to the economy. CPI inflation reached 6.2% in October, ahead of the expected 5.8%. Energy prices, housing, and food were the biggest contributors. The Fed has said that it will begin to taper bond buying to counter inflation.
Down 0.8.% (US 500)

EUROPEAN MARKETS

Markets sell off on new variant and renewed lock-down measures
A rapidly rising number of COVID-19 cases in Europe led some countries to enforce mandatory measures, causing unrest and impacting the markets. Eurozone inflation reached 4.9%, the highest level since records began, knocking investor confidence. Energy prices and the cost of imported goods were the major factors driving price rises. The ECB insists that price rises will dissipate in 2022. Core inflation, which strips away volatile items such as food, energy, and tobacco, was also above the ECB’s target rate of 2%, at 2.6%.
Down 2.6% (Euro 600 Index)

UK MARKETS

BoE decision to hold rates driven by new variant
The BoE decided to keep rates unchanged despite market expectations. This delay in implementation was not sufficient to counteract the negative impact of the new variant, which was particularly felt in small caps and sectors such as airlines. UK CPI reached 4.2%, as the shortage of goods & services and staff continue to push prices higher. UK house prices rose 10% in November from a year ago, according to Nationwide. Retail sales were buoyant at the beginning of the month.
Down 2.5% (UK All Share)

ASIAN MARKETS

Emergence of new variant hits the markets
Asian markets, including Japan, sold off with the emergence of the Omicron variant. Japan announced it was closing its borders and China has a zero COVID-19 policy. China has an oversupply of real estate, with slowing demand and a $5tn overhang of debt impacting this sector. The Chinese economy grew 4.5% in Q3, lower than the expected rate of 5.2%. The US Fed’s announcement of faster tapering is also weighing down on emerging markets, where the prospect of rising rates in the US will be a heavy burden for many companies borrowing in US Dollars.
Down 3.5% (Asia Index)

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

 

 

Key Points
• Oil prices fell sharply on the announcements of new travel restrictions to deal with the emerging Omicron COVID-19 variant
• Energy prices and the price of industrial metals were also down, as the new variant looks to derail economic growth and cut demand
• Continued strength in the US dollar, reflecting the prospect of rising borrowing costs for US Dollar dominated debt, puts pressure on emerging markets
• Asia, including Japan, and Emerging Markets were down sharply after the new variant was detected in South Africa

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 Key Points
• Currency markets have been shaken up with the rise in consumer prices across the globe
• The Bank of England’s decision to keep rates unchanged weakened the currency, but benefited the stock market and US dollar earning companies
• The possibility of faster bond tapering was a further boost to the US Dollar

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

Key Points
• US and UK government bonds rallied as investors sought safe havens. Yields for the 10-year US Treasury fell to 1.46% from 1.56% in November. In the Eurozone, negative yielding bonds are at their highest levels
• UK Gilt prices soared when the Bank of England kept rates unchanged, with the possibility that inflation is still being viewed as transitory. Yields on the 10-year gilt fell 0.8%. Following a stronger than expected economic rebound and higher tax receipts in 2021 versus 2020, the government cut bond sales by £60bn
• Investors appear to have opted for riskier, lower-grade, high-yield bonds and away from the safety of investment-grade corporate bonds
• Global corporate bonds are down year-to-date, as inflation continues to erode capital and cash flows

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

 

Disclaimer: The information contained in this report is for illustrative purposes only and should not be construed as a solicitation nor offer, nor recommendation to acquire or dispose of any investment. Specifically, the share class used to create the illustrations may not be available on all platforms nor be suitable for individual investors. This report was produced by Collidr Research (“Collidr”) for Affinity Integrated Wealth Management (AIWM) and while AIWM and Collidr use reasonable efforts to obtain information from sources which they believe to be reliable, neither AIWM nor Collidr make any representation that the information or opinions contained in this report are accurate, reliable or complete. The information and opinions contained in this report are subject to change without notice. Model returns are calculated using the most appropriate share class of the underlying funds, having regard to the illustrative nature of the report, with all income being reinvested. As a result, real portfolio performance may vary from model performance. Where model portfolio histories are shorter than three years, historic model returns are substituted prior to inception date with returns from an Collidr performance benchmark. This benchmark is constructed from the average returns of all Collidr portfolios with similar risk profiles that existed during that time. The value of investments and the income from them can go down as well as up and past performance is not a guide to the future performance. Affinity Integrated Wealth Management is a trading style of Buryfield Grange Limited, Buryfield Grange Life Planning Limited and Affinity Integrated Wealth Management Ltd. ‘Buryfield Grange Limited’ is authorised and regulated by The Financial Conduct Authority. Not all services provided by Buryfield Grange are regulated by the Financial Conduct Authority. ‘Buryfield Grange Limited’ is registered in England and Wales at Inspire House, 20 Tonbridge Road, Maidstone, Kent, ME16 8RT. Company registration number 4568338. Collidr Research is a trading name of Collidr Technologies Limited, registered in England and Wales at 34 Southwark Bridge Road, London, SE1 9EU. Company registration number 09061794. Data Providers: Bloomberg L.P. and Collidr.

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