Stock prices in London are seen to recover some of Friday’s sharp losses early on Monday opening session as markets continue to grapple with a new coronavirus variant. Global stock markets tanked on Friday, with overnight Asia session extending losses into the new week, after this new Covid-19 strain now known as Omicron cast doubt on global efforts to fight the pandemic, due to fears that it is highly infectious and could potentially evade vaccines. The new variant, on top of a rebound in case counts and widening restrictions in Europe, threaten to put a damper on the global economic recovery. Another widespread shutdown could put the already overstrained global supply chain into deeper trouble.

Several countries have announced plans to restrict travel from southern Africa, where it was first detected, including key travel hub Qatar, the US, Britain, Saudi Arabia, Kuwait and the Netherlands. But the virus strain has already slipped through the net and has now been found everywhere from the Netherlands to Hong Kong. In Australia, authorities on Sunday said they had detected it for the first time in two passengers from southern Africa who were tested after flying into Sydney.

Stocks in London are set to open lower on Tuesday, as concern over growing cases of Covid-19 in Europe overshadows Monday’s news that US President Joe Biden has confirmed Jerome Powell as chair of the world’s most influential central bank. Fed Chair Powell was getting the nod for another 4-year term leading the US Federal Reserve was the catalyst that managed to pull European stocks back off their lows of the day yesterday. Although it was not enough to pull the likes of the DAX and CAC40 into the green. Europe’s return to the pandemic’s epicentre has been blamed on a sluggish vaccine uptake in some nations, the highly contagious Delta variant, and colder weather moving people indoors again.

A weak performance by Asian equity markets overnight, despite upbeat economic data from China at the weekend. The weekend data brought a sharp increase in the trade surplus as export growth outstripped imports. A 27.1% rise in October exports does help reduce some of the fears around supply chain issues and energy-induced shutdowns. In the US, the Democrats have managed to agree upon the $1 trillion infrastructure package pushed by Biden, with the President expected to sign off on the bill.

Markets in Asia started the week with a negative bias as the region followed on from last Friday’s US session although sentiment began to improve as participants looked towards the opening of European markets. The ASX 200 was higher by around 0.4% supported by gains in the energy sector whilst the Nikkei 225 slumped close to 1% with Softbank and Fast Retailing being the biggest losers. In China, a spokesperson for the National Health Commission outlined that the most recent Covid outbreak covers 11 provinces with cases expected to rise further.

UK Focus

In the UK, Chancellor Sunak is set to announce the UK Budget later in the week and has cited that inflation and interest rates have been key factors to bear in mind ahead of the release. Sunak has reiterated that there must not be a return to significant economic restrictions despite the number of cases continuing to rise as the nation heads into the Winter period. The budget on Wednesday is set to see the minimum wage raised whilst restrictions on public sector pay lifted.

Last week saw the return of optimism in the markets. Inflation is still at elevated levels and the supply chain remains a concern, but the markets seem to believe that these issues will eventually be resolved.

The big question is still what actions will be taken by central banks, and what effect they will have on risk assets. The Pound continues to see good economic data releases and UK inflation is still running at high levels. The market is pricing a full 15bp hike in next month’s meeting and more in February 2022, and this has risks.

Last week was Non-Farm Payrolls week and it was yet another highly anticipated data release. In the end, the headline number was weaker than expected but that apparently didn’t seem to be enough to take the Fed off its tapering course. The RBNZ became the second major central bank to hike rates as expected, and there were no major surprises to shock markets either way.

The US Dollar finally took a breather after a few strong weeks, with the NFP reading putting a brake on its appreciation. The Euro failed to make any progress, hindered mainly by the terrible German economic data releases which included factory orders and industrial production was huge misses. The Pound had a decent week as bets start favouring an earlier rate hike by the Bank of England. With the strength in inflation and wage growth running past expectations, it seems that the BoE has very few options left. Commodity currencies did well on the whole, as oil continued its impressive bull run.