World stock markets retreat in fear of new restrictions by the omicron
Investors face the penultimate week of the year with the pandemic as the main financial compass. The new wave of covid-19 and the fear of new confinements have colored the world stock markets red this Monday. However, the European markets have moderated their crashes throughout the session. The Ibex 35, which has collapsed nearly 3%, has closed with a fall of 0.83%. London and Paris have lost around 1%, while Frankfurt and Milan between 1% and 2%. US stocks suffer worse bends. The Dow Jones, the S&P 500 and the Nasdaq Composite, which groups the main technology stocks, lost almost 2% at six in the afternoon Spanish peninsular time.
Given the expansion of the omicron variant, covid-19 has once again monopolized the attention of investors. The Netherlands has imposed a new strict confinement until January 14, while other European countries are considering establishing new restrictions to curb contagion during the Christmas holidays.
According to Blanke Schein Wealth Chief Investment Officer Robert Schein, omicron remains a concern and cases are on the rise. “You have to be prepared for covid-19 to continue to be a major factor in market performance going into 2022. After the bull run we have seen over the last 21 months, investors are not so used to prolonged periods of volatility”, the analyst pointed out.
In the Ibex 35, the biggest falls have been recorded by Merlin Properties (-6.34%) —due to the discrepancies in its advice on the management of its CEO, Ismael Clemente—, Grifols (-4.61%) and Arcelormittal ( -3.18%). Among the few values in green, the pharmaceutical company Rovi stands out, with an advance of 2.98%. So far this year, the main stock market index of the Spanish Stock Exchange has only gained just 2%, a much lower profit than the other European stock markets, which, on the other hand, have a return of over 10%.
Nieves Benito, head of Fundamental Research at Santander AM, points out that such low earnings are due to the fact that the Spanish economy is the one that suffered the most in the coronavirus crisis compared to European partners, with a contraction in GDP accumulated since the fourth quarter from 2019 to the second quarter of 2021, which stands at -8.4%. “This is explained by the great weight, above 28%, that represents the Leisure, Hotels and Restaurants sector. But, for the same reason, Spain should be one of the countries with the greatest recovery”, she added.
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Concern about the epidemiological situation is resurfacing again in a context of economic uncertainty. Senator Joe Manchin stunned the White House on Sunday by rejecting an estimated $2 trillion tax and spending package. A proposal by President Biden that the market had hailed as a fundamental element to support the recovery. Following this unexpected turnaround, the investment bank Goldman Sachs has turned on the alerts on the US economy and has cut its GDP forecast for the first quarter of 2022 to 2% from the previous 3%.
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Last week, central banks revealed their cards on withdrawing stimulus on the way to the post-pandemic era. All are preparing to put aside the ammunition that they had deployed in response to the health crisis, although at different speeds. If the United States has announced that it will raise interest rates in 2022, on the other hand, the ECB has not considered doing so, although it will put an end in March next year to the debt purchase program linked to the pandemic (PEPP, for its acronym in English), which provided 1.85 billion euros.
China's stocks closed lower on Monday after the region's central bank cut a key interest rate for the first time in nearly two years in a bid to boost growth in the world's second-largest economy. The CSI300 index, which represents the top 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, fell 1.5%. For its part, the Japanese Nikkei lost more than 2%.
The Chinese central bank's recipe is the opposite of the Federal Reserve's action, which considers that raising interest rates is the most powerful tool to push back inflation. According to Benito, the recent confirmation by the Fed of the hikes for 2022 and 2023 is in line with historical interventions for similar growth situations. In contrast, the Chinese economy is in a slowdown. “The activity indicators are showing a downward trend, and all of them are growing less than in the pre-Covid periods. This trend seems to be gradual, but the biggest concern continues to be the evolution of the property market”, adds the analyst.
In the raw materials market, the price of a barrel of Brent quality oil, a reference for the Old Continent, stood at 71 dollars, after falling more than 3%, while the Texas price stood at 68 dollars, after giving up 3.7%. These declines are due to concerns that the spread of the omicron variant may reduce fuel demand on the path to recovery.
