The end of this year clap is fast approaching and topical issues have not, for the moment, really changed, namely Covid and inflation (as well as the anticipated monetary policies).
On the first point, the feedback on the new Omicron variant seems rather positive: the vaccines, with a third booster dose, make it possible to limit the risks of serious illness and the data from South Africa shows admissions to hospitals still under control with a limited number of deaths. While the lethality therefore does not seem to be greater than that of the previous variants for the time being, its greater contagiousness does appear to be very real. The risk of hospital overloading cannot therefore be ruled out, with Boris Johnson even predicting an "Omicron tidal wave". Financial markets, like everyone else, have learnt to live with this new risk and the drawdowns, with each new wave, become less and less important in connection with an economy that has managed to adapt to successive constraints.
On the inflation side, Jerome Powell seems to have definitely won the communication battle. The inflation figures, released on Friday for the month of November at a high of almost 40 years, did not shake the financial markets more than that, rather even reassured to see them in line with expectations, contrary to recent months. It must be said that Joe Biden had prepared the markets for the worst by qualifying the figures the day before as "bad" and not reflecting "current reality". In detail, "headline" inflation over one year stood at 6.8% (against 6.2% the previous month) while "core" inflation (excluding energy and food) rose by 4.9% over the same period. The upward catalysts remain the same as in previous months. Energy in particular, whose prices rose by 3.5% over the month after 4.8% in October, bringing the increase to more than 33% over one year. Gasoline prices alone rose by 6.1% over the month and by 58.1% over one year! While the base effects on the most volatile items (such as energy) should be more favorable in the future, which should help lower headline inflation, higher prices in services, especially rentals, will continue to weigh on the perception of American households which, it should not be forgotten, have lost purchasing power in real terms despite the rise of wages.
The opening week promises to be decisive as no less than 20 central banks will hold their monetary policy meetings, including the Fed, the BoE and the ECB. After managing the rise in “temporary inflation that lasts", Jerome Powell is now tackling the acceleration of tapering in order to give himself more leeway in 2022 to hike key rates. The markets are already well prepared for this, which does not prevent long term rates from remaining abnormally low ...