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Although the global economy has been progressing at a slightly slower pace since early summer, its growth trajectory continues to be robust, write Guy Wagner and his team in their latest monthly market report "Highlights".

In the United States, activity even seems to be accelerating due to the sharp rise in household consumption, with retail sales up year-on-year in October despite a non-depressed basis of comparison from twelve months ago. In Europe, the situation is a little less rosy due to supply difficulties in the industrial sector and the resurgence of Covid-19 infections, although the purchasing managers' indices have so far held up at a high level. In China, the zero-tolerance policy to new coronavirus infections and the slowdown in the property market are reining in the growth of both domestic consumption and industrial activity. In Japan, third-quarter GDP fell compared to the previous three months, with the widespread decline in activity due to an increase in infections over the summer and supply chain disruptions.

Emergence of new Omicron variant provides uncertainty

“The emergence of a new Covid-19 variant, named Omicron, provided a fresh wave of uncertainty at the end of November. Its impact on global growth will depend on the degree of contagion, effectiveness of the vaccines, and severity of the symptoms it causes,” says Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments. The emergence of the new variant prompted a general decline in government bond yields in the United States and in the eurozone.

Setback on the stock markets at the end of the month

“After a favourable start to November, stock markets were caught off guard at the end of the month by the emergence of the new Covid-19 variant. The prospect of the bond-buying taper being speeded up, as suggested by Federal Reserve Chairman Jerome Powell in his Senate Banking Committee speech at the end of the month, also weighed on share prices during the final trading day of November.” Over the month, the US equity market was once again the most resilient. Guy Wagner: “In terms of sectors, only technology posted a strong gain, while finance and energy were the most affected by the threats to economic growth posed by the new variant.”

Fed announces tapering of its asset purchases

As expected, at the Federal Reserve's monetary policy committee (FOMC) meeting, Chairman Jerome Powell announced that the Fed would start tapering its asset purchases. Given the high level of inflation and robust economic growth, it seems highly likely that the FOMC will ramp up the pace of its tapering. In Europe, the ECB’s Governing Council did not meet in November. More precise indications on the future direction of European monetary policy are expected at its final meeting of the year in December.

Guy Wagner, Chief Investment Officer

An economics graduate from the Université Libre de Bruxelles, Guy joined Banque de Luxembourg in 1986 where he was head of the Financial Analysis and Asset Management departments. He was appointed Chief Investment Officer of BLI – Banque de Luxembourg Investments in 2005.

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