Monthly Market Pulse: December 2021

December started with a rapid escalation in the Covid pandemic across most of the world. The new omicron Covid variant forced fresh new travel restrictions, in the UK and elsewhere. The OECD warned that a renewed wave in the pandemic threatened to add to the existing strain on the world economy from persistently high levels of inflation. The new variant could cause severe global slowdown by amplifying shortages, driving up inflation or even forcing a repeat of earliest phases of the pandemic. As a result, it warned that Western governments could be forced to bring in fresh emergency financial support for businesses and households. Central banks around the world are grappling with rising inflationary pressures. The Bank of England’s deputy and monetary policy chief Ben Broadbent recently said that he expected UK inflation to ‘comfortably’ exceed 5% by spring next year^[i]. The also OECD increased its inflation forecast for next year to 4.4%, up from the 3.9% estimated in September. It predicts largest increases in the US and the UK, with rates of 3.1% and 4.4% next year respectively^[ii].

Chart of the month: Real GDP growth projections % change, year on year

Source: OECD Economic Outlook, The Guardian, Blend Network

Politics & Economics

The UK’s labour shortage shows no sign of easing. According to the Recruitment and Employment Confederation (REC), the number of job vacancies advertised in the UK has hit a new record 3.5 million ahead of the Christmas peak – double the number this summer^[iii]. Demand has been particularly high for prison officers, scaffolders, dentists, and vets.
The Confederation of British Industry (CBI) has cut its UK forecasts thanks to costs and shortages in recent months – and warned that the new Covid variant could see it dragged further. UK GDP is now expected to notch up a still strong 6.9% growth this year and 5.1% in 2022 – but that is down from an earlier outlook of 8.2% and 6.1%^[iv].

Business

Zog Energy, which supplied gas to about 11,700 households, became the 25^th UK energy supplier to go bust in three months, another victim of record market prices^[v].
A report by Logistics UK published earlier this month suggests that after a challenging 12 months for the UK logistics sector, there is cause for cautious optimism that the situation will improve as employers start to see the green shoots of steady recovery^[vi].

Real Estate

UK house prices continued to push higher in November: according to the Nationwide House Price Index, average house prices grew by 10% year-on-year, even though housing transaction data shows there have been some signs of cooling in housing market in recent months – October transactions declined by nearly 30% year-on-year^[vii].
According to the same index, the price of a typical UK home is now £37,000 higher than it was in January 2020, that’s 17% growth in the price of an average home^[viii].

Equity Markets

December started with jittery stock markets and several consecutive days of sell-off. Investors were quick to dump tech stocks^[ix] after lower-than-expected November US job growth figures and concerns over what omicron could do to the global economy^[x].

FX & Commodities

The World Bank’s latest Commodity Markets Outlook forecasts that energy prices – expected to average more than 80% higher in 2021 compared to last year – will remain elevated in 2022 but will start to decline in H2 as supply constraints ease. Non-energy prices, including agriculture and metals, are projected to decrease in 2022^[xi].

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[i] Source: https://bit.ly/3ppmg84

[ii] Source: https://bit.ly/3dF859P

[iii] Source: https://bit.ly/3GdlkKM

[iv] Source: Logistics UK Skills Report 2021, Logistics UK, 6^th December 2021.

[v] Source: https://bit.ly/3Ionglz

[vi] Source: https://bit.ly/3Ionglz

[vii] Source: https://on.ft.com/3oAPXEl

[viii] Source: https://cnb.cx/31unvLr

[ix] Source: https://bit.ly/3dlwJMq