The United States was the main economic driver, fuelled by ongoing strong domestic consumption and vigorous business investment. In the eurozone, growth momentum weakened slightly, with the services Purchasing Managers’ Index recording a slight decline in December.
In China, the slowdown in real estate activity and a zero-tolerance policy towards new coronavirus infections are hampering growth, which is mainly underpinned by the strength of exports and the resilience of business investment. In Japan, exports are holding up thanks to early signs of the normalisation of automobile production and robust demand for capital goods. The likely increase in the number of coronavirus infections and tighter lockdown measures due to the spread of the Omicron variant are expected to slow – but not derail – global economic growth in the first quarter of the new year.
Energy, technology and financials posted the strongest gains in 2021
In December, global equity markets resumed their year-long upward trend after the short-lived scare prompted by Omicron the previous month. This was reflected in the MSCI All Country World Index Net Total Return expressed in euros gaining 2.9%. Over 2021 as a whole, the global equity benchmark rallied strongly, up 27.5%. The US was once again the best performing region, followed by Europe and Japan.The Chinese authorities’ regulatory tightening weighed heavily on share prices in Shanghai and Hong Kong, even generating a slight decline in the MSCI Emerging Markets index. In terms of sectors, energy, technology and financials posted the strongest gains in 2021.
ECB to phase out its emergency pandemic purchase program PEPP at the end of March
At its December meeting, the Federal Reserve’s monetary policy committee (FOMC), changed its strategy in the context of rising inflation. The notion of transitory inflation was abandoned, the pace of asset purchase tapering was doubled, and the interest rate forecasts expressed by the members of the FOMC point to a gradual rise in interest rates from the spring onwards, with three rate hikes signalled in 2022 and three more in 2023. On this side of the Atlantic, the European Central Bank has announced the gradual reduction of its pandemic emergency purchase programme. However, to avert a brutal transition when the PEPP ends in March, the ECB will start increasing the conventional asset-purchase programme that was already in place before the pandemic. In contrast to its US counterpart, the ECB considers an interest rate hike in 2022 highly unlikely.
Increase in government bond yields at year end
The less virulent nature of the new Omicron variant compared to its predecessor Delta erased November’s general decline in government bond yields. The yield on the 10-year US Treasury note rose in December. In the eurozone, the benchmark 10-year government bond yield rebounded in Germany, in France, in Italy and in Spain.