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PictetWM CIO comments on latest Covid variant, movements in Europe and the US rally

César Pérez Ruiz, Chief Investment Officer, Pictet Wealth Management comments on latest Covid variant, movements in Europe and the US rally

We can expect markets to remain volatile:

“The latest covid variant to wreak havoc, Omicron, is particularly menacing given that the virus’s structure could evade existing vaccines. While the situation is concerning, from an economic perspective, we know what fiscal and monetary measures could be taken if necessary. To better grasp the full severity of the situation, we must understand 1) Is it more contagious than Delta? 2) Is it more dangerous? and 3) How efficient are existing vaccines against it? Until we have enough data to answer these questions, we can expect markets to remain volatile. The poor liquidity due to the US Thanksgiving holiday and stretched valuation caused risk markets to correct significantly last week.”

Good news for Europe:

“In Europe, good news came in the form of resilient purchasing manager indices and a German coalition agreement. The Greens, who will now control a new economy and climate-protection ministry, have already announced some ambitious energy policies and a 25% rise in minimum wages. This supports our Green Marshall Plan theme. Neighbouring Switzerland’s third-quarter GDP growth shows that the economy has returned to its pre-covid level.”

US rates have rallied in response to the Omicron variant:

“In the US, consumer and income data continues to come in strong. Federal Reserve Chair Jerome Powell’s reappointment initially triggered renewed market concerns that the Fed would speed up monetary policy tightening on the back of rising inflation. This is now highly uncertain, as US rates have rallied strongly in response to the Omicron variant. Last week, global currencies roller-coastered, with the USD appreciating to a fresh 16-month high on Wednesday. Elsewhere, the Chinese authorities have reportedly requested that a prominent Chinese ride-hailing company delist from US exchanges as their pressure on big Chinese tech companies continues. We continue to prefer DM equities to their EM equivalents.

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