The final month of 2021 has arrived, and it’s filled with more than just the holiday spirit. December commenced with the South African discovery of a new variant of the Coronavirus, the Omicron variant. This led to travel restrictions from various African countries as well as a surge of doubt regarding the effectiveness of current vaccines. The doubt was reflected on the stock market on Wednesday. The infection rates in South Africa increased and Omicron cases were discovered in California, leading to a decrease within the three major U.S. indexes. Despite recovery in the morning, the S&P500, Dow Industrials and Nasdaq Composite finished lower at the end of the day.
The past week also shed light on what to expect for 2022. It became clear that the demand for oil in the new year remains difficult to predict, due to the uncertainty that precedes the Corona crisis. Especially with the newly detected variant, governments are imposing travel restrictions and lockdowns. Consequently, the supply that will be required remains a question mark. Even so, OPEC+ announced a rise in output for January 2022. The statement was surprising, as analysts expected hesitance and caution. Additionally, they are critical to the duration that OPEC+ can supply the announced output, as the Corona crisis led to an overall decrease in investments and oil reserves were used for supply. The news welcomed a price decrease of nearly 3% but it was corrected at the end of the week.
The question about supply is not limited to the oil industry. The demand for products remains high yet the supply shortages and bottlenecks have caused prices to skyrocket.
For the eurozone, the core inflation rate, excluding food and gas, jumped from 2% to 2.6%. Moreover, economists predicted inflation to be 4.5% higher in November 2021, compared to November 2020. This week however, the European Union’s statistics agency announced that the consumer prices in the previous month had in fact increased by 4.9%. The main driving force behind the surge being increased energy prices and supply chain disruptions. All eyes are on the European Central Bank, who will meet on December 16th, where it will be decided whether interest rates should be increased to counter the inflation. The expectations for an intervention are low, as in the latest press moment Ursula von der Leyen commented that it would take eighteen months to see any result of an intervention by which, according to the ECB estimations, the inflation will be down to normal levels and the intervention will prove counterproductive.
As for the United States, Federal Reserve Chairman Jerome Powell was questioned about the country’s high inflation and whether it is “transitory”, a word he used frequently to describe said inflation. He answered that he would cease to use that word in the future as: “The word ‘transitory’ has different meanings to different people”. This statement led to an overall fall in the American stock market. Similar to the ECB, the FED will meet in December and decide whether the FED will raise interest rates to counter the inflation the U.S.A is facing.
After some time, changes in competition provider and troubles with brokers we have finally started our simulation competition. As the last week hasn’t been too profitable for most investors, we also see this in our competition. First place has been awarded to Carhart Investments with a return of 1.63%. They are unfortunately the only group in the green as of this moment. I and all of us expect this to change in the near future!
I can go through all the bad returns in the last week but because I want to end on a positive note I will not and merely state that it can only go up from here for last year's winner of the Flow Traders Investment Competition.