Market Updates

News of the COVID-19 variant that emerged in South Africa (named Omicron) shook sentiment on Friday, prompting sharp declines. Looking ahead, it will be important to watch how this latest COVID news feeds into central bank thinking, with money markets already repriced the timeline for potential rate hikes further out.

As U.S. inflation is hitting three-decade highs, market talk has been all about “liftoff:” When will the Federal Reserve and others start raising their policy rates? This is old news in emerging markets (EMs), where many countries have already raised rates to try to tamp down inflation.

We saw a clear shift in sentiment on lockdowns last week, as countries across Europe continue to hit new daily case records and death rates increase again.

Inflation remains front and centre. Strong US inflation data raised fears that the Federal Reserve is behind the curve and would need to take more hawkish action in the future.

Climate change and the transition to a low-carbon future will be a key driver of long-term asset returns. BlackRock have seen encouraging development from the ongoing UN climate summit (COP26). There are risks to that path.

A dovish tone from several central banks helped support equity markets, alongside positive news on a Pfizer COVID-19 treatment. Earnings season continues to be supportive, with more companies beating than missing on earnings metrics.

Strong earnings growth is due to the strong economic restart – and the realization of such strength was priced in by higher multiples last year as stocks surged back from the Covid-19 shock. BlackRock are likely to see earnings growth normalize as activity settles after the powerful restart.

Central Bank action continues this week, with the Reserve Bank of Australia (Tuesday), Federal Reserve (Wednesday), Norges Bank and Bank of England (Thursday) all meeting. the Fed is expected to announce the start of tapering, including key details on the pace, timing and composition of its plan to reduce asset purchases.

Surging natural gas and coal prices amid a powerful economic restart have exposed a lopsided transition toward low-carbon power. BlackRock still see an orderly transition in the medium term – but with bumps on the way that could lead to growth and inflation volatility.

Global equities were back near record highs last week despite a series of headwinds. Tapering fears, concerns of peak growth, supply chain issues and Chinese property developer Evergrande’s potential default have been key market themes of late and they show little signs of abating.