William John Market Report 21-12-21
William John looks at the market reaction to the announcement of the lockdown in the Netherlands and what the future holds for the markets if governments pursue economically restrictive policies to combat Omicron.
WilliamJohn, Omicron, COVID-19, Lockdown, Equities, Markets, Commodities, Oil,
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William John Market Report 21-12-21

William John Market Report 21-12-21

Category: Reports

Major commodity and equity markets have taken a slide as concerns mount over the “Omicron” variant of COVID-19. As the new variant of the virus spreads rapidly, investor uncertainty surrounding the economic consequences of Omicron are growing. 

On 19/12, the Netherlands announced a strict Christmas lockdown, which included non-essential shops, bars, gyms, hairdressers and other public amenities and venues to be closed until mid-January at minimum. The question remains as to whether other European countries (and the World as a whole) shall follow suit. 

Given the economic data on COVID-19 induced lockdowns, which saw UK GDP decline by 9.8% in 2020 – the steepest drop in economic output since records began on a per annum basis – re-introducing these measures will only worsen public debt, cause more businesses to fail, and wreak havoc on the balance sheets of larger companies and institutions that may be lucky enough to survive a further lockdown. 

Looking at the S&P 500 over the past ten days:

Source: William John Analytics, Yahoo Finance

The index, which has rallied to record highs over the past year, has seen a decline which included a drop of 1.8% alone on Friday 17/12. On 20/12, the FTSE 100 recorded a drop of approximately 1% whilst in Europe the STOXX 600 saw a drop of 1.38%. All major Western equity markets recording such drops indicates that investors believe lockdowns and economically damaging restrictions are back in fashion for government as we enter 2022. 

Elsewhere, the global benchmark index for oil futures, the Brent Crude, has also seen a steep decline, falling to below $71 on the New York Mercantile Exchange as of 20/12. Looking at Brent Crude over the past ten days:

Source: William John Analytics, Yahoo Finance

As prices for oil futures contracts fall, it is indicative of the fact investors believe demand for fuel (which is derived from the demand for oil) will fall. Expecting a fall in the demand for fuel and oil is an early signal and a reinforcement to the analysis in the equity markets that markets are anticipating lockdowns ahead, which will significantly reduce road usage. 

It is entirely plausible that the negative jolt to markets that had experienced significant rebounds in 2021 could represent a “knee jerk” reaction and growing investor uncertainty. However, should restrictive measures and lockdowns sweep across the European and North American continents once more, a trend reversal in such bullish markets could potentially last throughout Q1 and Q2 2022 – and possibly beyond. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.