The Day at a Glance | November 30 2021

The Top

*Jerome Powell considers that the Omicron variant entails risks to growth and a greater level of uncertainty regarding inflation.

*Inflation in Europe logged never before seen levels and exceeded all estimates by setting at a 4.9% annual rate during November.

*Mutations of the Omicron variant suggest that new vaccines will be necessary: Moderna.

*PMI`s in China show a faster than expected rate of growth despite the slight slowdown in services.

Economic environment

Powell warns about economic risks of the virus`s new variant. According to a speech prepared by Jerome Powell and made public by the FED, which will be read this morning before the U.S. Senate, the recent upsurge in COVID-19 cases and the appearance of the Omicron variant raises risks for employment and growth in addition to increasing uncertainty concerning inflation. Powell considers that the virus`s new variant could give people an incentive to avoid going back to the workplace, which could maintain the labor market tight in the manufacturing sector, leading to bottlenecks in productive chains and could cause higher inflation. The speech also reveals that the Chair of the FED and its members now expect inflation to remain at high levels for a good part of 2022, even though he reiterated that it`s difficult to forecast how long productive chains will continue to be affected; most members also expect inflation to decrease by the end of next year. In his speech, Powell is committed to using all available tools to avoid inflation from becoming persistent, while the FED will continue to seek backing for the economic recovery. Powell`s warnings are coupled with vaccine manufacturer Moderna`s, which have led to a negative sentiment among markets. Moderna has confirmed that its highly likely that the efficacy of current vaccines will be reduced due to the virus`s new mutations, which is why a new vaccine will be necessary in 2022.

Record inflation in Europe. The Eurostat`s first estimates suggest that inflation in the European block accelerated to historically high levels; 4.9% annual in November. Large part of the increase is explained by energy resources, but even the underlying price index increased to record levels by logging a 2.6% annual rate. Despite the surprise in inflation, the ECB continues sending messages to markets and citizens that the rebound in prices will not be long-lasting and that they don`t plan on decreasing monetary stimuli at a fast pace. In its next meeting – scheduled to take place on December 16 – the ECB is expected to announce the withdrawal of the emergency purchasing program, which would be completely eliminated in March. However, conventional purchasing programs will be active and low interest rates will remain in place. Members expect to see a significant decrease in inflation starting in the 2Q22 and have shown preference for continuing to back growth for a longer period of time.