Weekly Digest: Omicron Risks, Inflation 'Not Transitory'


5 minutes read

Dec 2, 2021

spread of new covid variant omicron illustrated by a tightrope walker crossing the sea of omicron viruses

02/12/21: New Covid variant raises market uncertainty, Fed Chairman Jerome Powell accepts inflation isn’t “transitory”, a famous investor says: “stay away from cash”. And more.

Investment news

The gold price rose to $1,778.56 an ounce on Wednesday, as weaker bond yields and uncertainty over the omicron variant and its impact on economic growth lifted the metal’s appeal. (Reuters)

"The prospect of slowing economic growth and persistent inflationary pressure could see the ‘stagflation’ debate regain traction. Gold could benefit from this economic backdrop but remains tied to additional omicron data," said DailyFX analyst Warren Venketas.

According to Credit Suisse, the Fed will raise interest rates once in the second half of 2022. “Between now and then inflation will remain elevated, resulting in still deeply negative real rates, which is positive for gold," the bank said in a note dated Tuesday.

Among other precious metals, the price of silver went up 0.10% to $22.82 an ounce, platinum gained 0.90% to $942.59 and, palladium rose 0.7% to $1,751.02.

It’s getting worse. The Eurozone’s inflation rate has risen to a record high in November 2021, hitting 4.9% — the highest level ever recorded over the past 25 years. (CNBC)

The figure is higher than an initial consensus forecast of 4.5% and is above October’s 4.1%. Analysts say this might push the European Central Bank to rethink its monetary policy.

In Germany alone, the inflation rate has hit a 29-year high in November, up by 6% from a year ago. In France, too, the inflation rate has reached 3.4%, the highest result since 2008.

The word "transitory" is out the window. Talking about inflation in front of a Senate panel, Fed chair Jerome Powell said "it's a good time to retire that word and try to explain more clearly what we mean." (Bloomberg)

When it comes to tapering, Powell said: "It is appropriate, I think, for us to discuss at our next meeting, which is in a couple of weeks, whether it will be appropriate to wrap up our purchases a few months earlier.”

The change of tone from Powell and his appetite for a faster tapering caught economists and market participants off guard, in addition to worries over the emergence of the omicron variant. (Reuters)

In recent days, the news about the omicron variant has shaken global financial markets, amid rising fears that it could spread faster than the current dominant Delta strain.

Powell's remarks added to the omicron-spurred market volatility as they helped drive U.S. stocks lower, with the S&P 500 index losing 1.3%.

Fed officials are clearly not happy with inflation running hot: "This is not a success, this year, and I wouldn't consider a repeat next year of inflation at this level a success," Vice Chair Richard Clarida said. (Reuters)

Inflation, now running at more than twice the Fed's 2% target, is only expected to ease in the second half of 2022.


With markets unnerved by a more hawkish Fed and omicron risks, Bridgewater Associates' Ray Dalio has warned investors to stay away from cash, saying that it will be eaten away by inflation. (CNBC)

"Cash is not a safe investment […] because it will be taxed by inflation," the founder of the world's biggest hedge fund said.

Dalio explained that during periods of market volatility, the key is to have a well-diversified portfolio, and advised transferring your wealth.

"Know how to balance a portfolio. When equities go down, then you see the bond market, gold go up. Wealth is not destroyed as much as it is transferred. And if you know how to balance those investments, that's the most important thing," he said.

Read our SPOTLIGHT article to learn more about portfolio diversification.

What else is happening

The number of countries reporting omicron cases is growing: the new virus variant, first identified in South Africa, has been spotted in locations from U.K. to Spain and Canada. (Bloomberg)

Countries are imposing new restrictions to fight the spread of omicron, with travel restrictions and compulsory masks remaining at the vanguard of government responses.

In Europe, where the situation has worsened, Belgium has reported the highest number of daily admissions in a year, while German hospitals are dealing with growing number of patients.

Scientists say it will take weeks to tell how dangerous omicron really is.

OPEC+ started two days of talks on Wednesday to discuss its oil output policy amid big jumps in crude prices and fears about a new Covid variant. (Reuters)

Oil prices fell to near $70 a barrel on Tuesday, posting their biggest monthly decline in November since the start of the pandemic.

It’s unlikely, though, that OPEC+ will change course from its current production plan of a monthly hike of 400,000 barrels per day.

Elon Musk tells SpaceX employees that Starship engine crisis puts the company at “risk of bankruptcy’, and is “much worse than it seemed a few weeks ago.” (CNBC)

“We face genuine risk of bankruptcy if we cannot achieve a Starship flight rate of at least once every two weeks next year,” Musk said in a company-wide email.

Starship is the next-generation rocket SpaceX is currently developing to fly cargo and people to the moon and Mars. The company has flown multiple test flights, but to start orbital launches, the rocket prototypes will need as many as 39 Raptor engines each.

And finally

A tiny gold book was found on farmland near York in northeast England. Experts say it bears a striking similarity to the Middleham Jewel, a late 15th-century gold pendant, set with a large blue sapphire stone. (Smithsonian Magazine)

Weighing less than an ounce, the half-inch-long artifact is made of either 22- or 24-karat gold.

“The book is dated [to a period] when sumptuary law made it illegal for anyone other than the nobility to carry gold. Automatically, then, it would have been the possession of someone highly notable, such as a member of royalty,” Julian Evan-Hart, editor of Treasure Hunting magazine, said.


See you next week!  


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