The markets shrug off Omicron

This is an audio transcript of the FT News Briefing podcast episode: The markets shrug off Omicron

Marc Filippino
Good morning from the Financial Times. Today is Friday, December 10th, and this is your FT News Briefing.

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US inflation is expected to rise at a pace not seen since the Reagan era, and Omicron doesn’t seem to be rattling markets too much. So what are investors thinking?

Katie Martin
The kind of mindset the investors that I speak to are in now is that the shocks are shorter. Shorter and sharper shocks. Try saying that with an egg in your mouth.

Marc Filippino
Plus, a global company headquartered in Seattle has to deal with a workers union in the US. It’s not Amazon. Grab a latte and we’ll tell you who it is. I’m Marc Filippino, and here’s the news you need to start your day.

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Inflation in the US looks like it’s accelerating. The US government releases the latest consumer price index today. It’s for November, and it’s expected to show prices increased 6.8 per cent compared to last year. That would be the fastest pace since 1982, and it’s even faster than the previous month, which is pretty astounding. Here’s the FT’s US economics editor Colby Smith.

Colby Smit
Astounding is is the right word here. People have really come to the conclusion that inflation is going to come in you know a lot stronger and potentially be a lot more persistent than they initially thought just a couple of months back. And it also is going to certainly embolden more aggressive action from the Fed to do something about these price pressures.

Marc Filippino
Yeah. And even recently, Fed chair Jay Powell said that this inflation isn’t transitory, something that he had been saying for months. So this CPI number for November would you know pretty much drive that point home, right?

Colby Smith
Yeah, absolutely. I think transitory is dead and gone at this point. But to be fair to the Fed and their outlook for inflation, I don’t think that the kind of substantive narrative about inflation has changed so dramatically in the sense that no one’s kind of too concerned about runaway inflation akin to what we saw in the 1970s. You know, it’s not necessarily about this pace of inflation staying with us. It’s just that when we do see a moderation at some point next year, it perhaps won’t be as significant and may take a bit longer than anyone thought.

Marc Filippino
So Colby, what does this mean for monetary policy? A survey for the Financial Times that came out this week polled dozens of economists on what they think the Fed is gonna do. I mean, Powell has already said he’s willing to speed up the tapering of pandemic asset purchases. Originally, it was, it looked like they were going to wrap up in June, right?

Colby Smith
Right. So Powell and other senior officials are now talking about ending those purchases a couple of months earlier. So economists are now broadly thinking that we will see the Fed and those purchases in March, which is what the poll showed. And they’ve started to think about when interest rate increases will come after that. So according to the poll, you know, the majority think that we’re gonna get the first interest rate increase before the third quarter. But interestingly, 10 per cent of the economists that we polled think that something could come as early as the first quarter. That would be a substantially more rapid pace than I think anyone is currently anticipating.

Marc Filippino
Colby Smith is the FT’s US economics editor.

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For the past couple of weeks, we’ve missed our Friday chats with our markets editor, Katie Martin, because she was out with Covid. Fortunately, she’s recovered and now she’s back to talk with us about how financial markets are coping with Covid and the latest variant. Hey, Katie, welcome back.

Katie Martin
Hey, thanks.

Marc Filippino
So not to make you relive the discomfort of Covid, and I know you had it, you know, really bad. But you know your story and how markets reacted to Omicron kind of go hand in hand?

Katie Martin
Well, kind of. Yeah, I mean, so, you know, a couple of weeks ago, a decent shock to markets when the Omicron variant of coronavirus was first discovered. At the time, I was laying in bed with Covid myself, which I managed to get for the third time despite my jabs. But, you know, by the time I came back after feeling pretty horrible, I have to say the market shock is completely gone. And this tells you quite a lot about how quickly investors are kind of whirring through these kind of shocks in markets now and just getting kind of back to business really, really quickly. And I think this is probably a sort of cycle of fear and loathing. And then, nah it’s all going to be OK, but we’re going to have to get used to.

Marc Filippino
So, Katie, yesterday the tech-heavy Nasdaq wobbled, but it’s pretty safe to say that markets have broadly recovered from the initial Omicron scare that we saw last week. Why are markets so nonchalant about the Omicron coronavirus variant?

Katie Martin
So I think the kind of mindset the investors that I speak to are in now is that the shocks are shorter. Shorter and sharper shocks. Try saying that with an egg in your mouth. But yeah, shorter shocks that come from kind of bad news about the pandemic. Now, it kind of tends not to last for so long, but you know, I’m not an epidemiologist and neither are you. But some of the more harum scarum kind of ideas around the severity combined with how quickly it spreads. The symptoms can be quite mild. So the nightmare scenario is that some sort of variant comes along that takes us back to where we were in sort of February 2020, and everything has to properly shut down again, and it doesn’t look like Omicron is going to be that thing.

Marc Filippino
Now, how are central banks managing this? You know, given the uncertainty around Omicron, you might think central bankers would keep monetary policy loose a little longer rather than raise rates. But that’s what we’re seeing in in quite a few places.

Katie Martin
It is a really difficult spot that they find themselves in, and it’s really challenging to see how central banks can can start pushing up interest rates again, a programme that some people would describe as normalisation. Nobody wants to raise interest rates so quickly that you completely pull the rug from under markets and cause a whole new set of economic stresses that stem from the financial system. So I don’t know how we square the circle, but I do know that we’re going to be talking about it forever.

Marc Filippino
So, Katie, the other thing I wanted to ask you about is this pullback in hyper growth stocks. These crazy, fast rising shares in companies like the electric vehicle start-up Lucid or the online sports betting company DraftKings. You know what’s been happening with these stocks?

Katie Martin
A lot of the kind of, you know, whiz bang stocks of kind of tech companies, younger, less profit making companies that a lot of investors have got into because they think that they are the future, that are experiencing a little more stress, partly because of the interest rate environment, partly because people think this inflation thing isn’t going away. If central banks do raise interest rates, what does this do to some of the more kind of adventurous bets that are out there in the stock market? So, yeah, this kind of high growth, but not yet profitable companies have been in lot more trouble. And about a third of the stocks in the Nasdaq Composite, which is tech-heavy are down about 50 per cent from their 200-day moving average. The big investors are saying you are going to have to be really nimble and really kind of make sure that you’re getting quality in your investments over the next 12 months because this sort of stability and constant pushing higher that you’re seeing in kind of the really big indices is masking a lot of pain for a lot of parts of the market and some of the froth really is coming off this kind of highly adventurous bets.

Marc Filippino
Katie Martin is the FT’s markets editor. Thanks, Katie.

Katie Martin
No problem.

Marc Filippino
Starbucks has a first American labour union on its hands. The company didn’t want one, but employees in northern New York state voted yesterday to become the chain’s first unionised store in the US. Workers at another Starbucks in the same city, Buffalo, voted no. Ballots at a third store are being contested. The FT’s Taylor Nicole Rogers says that the one victory is still pretty significant.

Taylor Nicole Rogers
Just the fact that this will be the first unionised café in the country means that there’s gonna be a tipping point. And even if they had lost, I think Starbucks would still be pretty scared because of how fast this thing is spreading. There are three more stores in Buffalo that are headed towards elections and another story in Arizona that just filed. So either way, I think something fundamental has changed at Starbucks.

Marc Filippino
Taylor adds there’s also political significance here.

Taylor Nicole Rogers
As soon as Biden got elected, he said he was going to be the biggest pro-labour president you’ve ever seen, and we haven’t really seen much movement for the labour union, aside from all of the strikes we saw in October. So the fact that this was a high profile win in the industry, the service industry, where there are virtually no unions, means that this is going to energise people for months to come.

Marc Filippino
Taylor Nicole Rogers is the FT’s labour and equality correspondent.

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Before we go, the name Sackler is disappearing from another distinguished institution. The Metropolitan Museum of Art in New York City agreed with Sackler descendants to remove the name. The family has donated lavishly to museums around the world, but its name has been tarnished. Given that the Sacklers company Purdue Pharma manufactured and marketed the addictive pain medication OxyContin, which is at the heart of the deadly opioid crisis in the US. The Met isn’t the first to do this. The Louvre in Paris removed the Sackler name from its Oriental Antiquities wing two years ago.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Joanna Kao, George Drake Jr., Peter Barber, Gavin Kallman and Michael Bruning. Our global head of audio Cheryl Brumley, and our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.


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