Investment Institute
Viewpoint Chief Economist

Data, finally

  • 13 December 2021 (10 min read)

Key points

  • New data on Omicron confirms it is a significant challenge, forcing in particular a swift acceleration in the booster programme, but we are not back to square one on the pandemic.
  • Momentous week for central banks.

Some precise data are finally starting to emerge on the Omicron variant. A study by the UK Health Security Agency on 581 symptomatic cases confirmed that the usual regimen of two vaccine shots provides little protection against the variant. However, it also suggests that a third dose would be effective, albeit less so than with the Delta variant. The latter is good news because it means that there is an alternative to merely waiting for a re-engineering of the vaccines: accelerating the booster programmes. They are already going relatively quickly in most western European countries – much more so than in the US – but the persistence of a not insignificant minority of adults who are not vaccinated at all, as well as the incompressible time needed to get the third jab to all those who are already vaccinated, probably means that some additional sanitary restrictions will be on their way, with some impact on economic activity. True, there are tentative signs that the infections brought about by the Omicron variant are less severe than in the historical versions, but governments are unlikely to take risks. However, while the variant is of course a setback on the recovery trajectory, the potential for a fairly quick rebound looks decent. We are not back to square one on the pandemic.

Amid this still incomplete information on the sanitary front, some central banks need to make some big decisions this week. The Fed seems to partake to the generally higher tolerance to sanitary risk which has been prevailing in the US since the start of the pandemic and looks set to announce an acceleration of its taper which would now end at the beginning of Q2 2022, thus leaving lots of space for pre-emptive hikes if need be. The Bank of England needs to compose with the additional sanitary restrictions from this week onward. While we accept that the UK is a good candidate for a persistent inflation drift, we fail to see the urgency in hiking given the level of uncertainty. Yet, for pure reasons of credibility, after last month’s flip-flopping, the MPC may still decide to hike anyway.  When it comes to the ECB, we have refined the “two stage approach” we developed last week. We expect Christine Lagarde to announce a continuation of APP until the end of 2022, but the quantum of the up-scaling designed to cushion the market impact of terminating PEPP in March – we expect EUR 40bn per month for the new target – would be fixed only for Q2, with a rendez-vous clause in June and September coinciding with the new forecasts. More than the quantum itself, we expect the market to focus on the flexibility the ECB will still give itself to deal with potential market fragmentation. We think the PEPP reinvestments – for now due to continue until 2023 at least – will be a key instrument.

Download the insight
Download report (451.34 KB)

Related Articles

Viewpoint Chief Economist

Testing Time Coming Early

  • by Gilles Moëc
  • 18 July 2022 (7 min read)
Viewpoint Chief Economist

It's starting

  • by Gilles Moëc
  • 27 June 2022 (7 min read)
Viewpoint Chief Economist

It’s Getting Tighter

  • by Gilles Moëc
  • 20 June 2022 (7 min read)

    Diclaimer

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.