Until the last week of November markets performed generally well, despite the continuous news headlines relating to rising numbers of COVID cases, as well as newly imposed restrictions in countries such as the Netherlands and Austria. The United States still has an annual GDP growth rate of 4,9% for the third quarter ending in September while the Eurozone reported 3,7% growth. Also the unemployment rate in the US dropped to 4,2%, and initial jobless claims even hit the lowest level since 1969 with just 199,000 new claims. Eurozone unemployment, although gradually decreasing, is still at 7,3%. On the back of a generally positive earnings season, stocks continued the positive momentum.

But then on November 26 a new variant of COVID, named »Omicron», was announced. Originating in South Africa, the first cases of Omicron were soon also confirmed in Europe and Asia and a few days later also in the United States, triggering a sell-off worldwide on concerns of potentially additional measures and renewed lockdowns. 

In addition, comments by Jerome Powell, chairman of the Federal Reserve, added further fuel to the sell-off, sending stock indexes into the red for the month. With United States core inflation reaching 4,6% in October, the highest level in three decades, the Federal Reserve no longer described it as transitory and »retired« the use of the word, essentially admitting that elevated inflation is more resilient than they expected. While the FED has initiated tapering with monthly reductions of 25 Billion dollars, they now aim to accelerate the tapering process. This leads to speculation that the FED may start raising the interest rate as soon as in June 2022. As fort he European Central Bank, no interest rate increases are expected yet for 2022.

This favored the dollar which continued to gain against the Euro, adding 1,95% to close at 1,1336. Indices however did not fair well. The S&P500 dropped 0,83% to close at 4567 but climbed as high as 4743 a few days before Omicron was identified. Other indices worldwide followed a similar pattern of gradual gains throughout the first 3 weeks of November and then corrected during the last week. The Dow Jones dropped 3,73% and Nasdaq eeked out a 0,25% gain. In Europe the Dax, CAC and Eurostoxx fell 3,75%, 1,60% and 4,41% respectively. The UK's FTSE index fell 2,46% while the Pound Sterling lost 0,95% against the Euro to close at 0,8522. The Slovenian SBITOP index outperformed European indices, gaining 4,01% even though it also somewhat corrected during the final week of the month. 

In Asia Pacific, the Hong Kong Hang Seng index dropped 7,49% while the Japanese Nikkei dropped 3,71%.

The biggest loser of the month however was oil. After a 9,53% gain in September and 11,38% in October, WTI oil futures dropped 20,81% in November, including a drop of more than $10 per barrel when the Omicron news broke out, closing at $66,18 per barrel from $83,57 at the end of October. In a way this is good news as the lower oil price may put some downward pressure on inflation in the coming months, providing some relief to central banks.

Rudy Marchant
Fund manager Primorski skladi, d.o.o., Koper

Monthly reports - November 2021