New lockdowns shake markets

Edward Bell - Senior Director, Market Economics
Published Date: 22 November 2021


  • A new national lockdown in Austria has shown that despite vaccine rollouts across much of the global economy, the Covid-19 pandemic still represents a risk for growth and public health. Cases in Austria have spiked in recent weeks to a 7-day average of nearly 14k and there are worries that Germany, a far bigger economy, will follow suit as cases there are rising at a similar parabolic trajectory. Both countries had rapid vaccine rollouts during the summer months but have since stalled with around 65% of the population being fully vaccinated against Covid-19.
  • The US House of Representatives passed the Biden administration’s Build Back Better plan for social spending and climate change investment. The finalized plan would see USD 1.6trn to be spent over 10 years with a focus on improving access to education and childcare. While the headline level is large—admittedly toned down considerably from earlier proposals of as much as USD 3.5trn—it is likely to have only modest impacts on growth in the near term given that its timeline is so long. More crucially, the bill will now need to pass the Senate where Democratic control is narrow and there is already opposition to the spending from more conservative members of the Democratic party.
  • In the UK, retail sales rose 0.8% m/m in October, their first increase since April. The jump in spending was better than market expectations and looks to have been driven largely by core purchases as well as seasonal consumption ahead of end of the year holidays. Combined with the elevated inflation print reported for October, more and more barriers to rate hikes by the Bank of England are coming down with the December 16 meeting in focus.
  • The Turkish central bank cut its one-week repo rate by 100 bps on Thursday, taking the benchmark rate to 15.0%, and real interest rates to -4.9%. CPI inflation was at 19.9% in October and is unlikely to slow anytime soon given ongoing upwards pressure from currency depreciation and higher energy prices. The third consecutive cut was widely anticipated following comments by President Erdogan earlier in the week, and the lira depreciated prior to the meeting, having broken through the TRY 10.0/USD mark on Monday. The currency ended Thursday at 10.964, having dropped 3.4% over the day and closed the week at 11.288, extending its losses to 34% year-to-date .
  • UAE central bank data showed bank deposit growth at 0.7% m/m and 1.8% y/y in September, while lending remains more muted at 0.3% m/m and -1.6% y/y.  Encouragingly, loans to the private sector accelerated to 0.5% m/m, the fastest m/m growth this year, while annual private sector loan growth improved to -0.2% y/y from -1.5% in August.
  • The value of the UAE’s non-oil trade grew 26.5% y/y in Jan-Sep 2021, more than recovering from the pandemic-related decline in the first three quarters of last year.  Non-oil exports grew 34.5% y/y while re-exports rebounded 24.0% y/y.  Imports also increased by a quarter as demand has recovered.  India was the main export destination for the UAE, followed by Saudi Arabia, while China topped the list of import markets.   
  • Hotel occupancy in Dubai rose to 80.7% in October, up more than 30 percentage points from October last year and a sharp improvement from September’s 67% occupancy. Revenue per available room surged to USD 170 per night from USD 74 in September, and up more than 200% y/y.  The start of Expo 2020 undoubtedly contributed to the sharp rise in hotel occupancy and the RevPAR, along with the easing of travel restrictions from key markets including India, Saudi Arabia and the UK. Abu Dhabi’s hotel occupancy also rose last month, reaching 74.6% compared with 62.3% in October 2020.  

Today’s economic data and events

11:00 TU Consumer confidence Nov: forecast N/A

19:00 US Existing home sales Oct: forecast -1.8% m/m

19:00 EC Consumer confidence Nov: forecast -5.5

Fixed Income

  • The threat of renewed national lockdowns hung over markets last week and prompted a flight to safety in particularly exaggerated moves at the end of the week. A broad measure of US Treasuries rallied modestly, regaining some of the prior week’s losses. Yields on the 2yr UST closed slightly down while the 10yr fell more than 1bps on the week to 1.5462% although down almost 9bps from an intra-week high of 1.6335%.
  • Several Fed officials have spoken on the possibility of accelerating the tapering of asset purchases with both vice chair Richard Clarida and governor Christopher Waller supporting a faster drawdown. The improvement in the labour market, with headline unemployment falling substantially, and elevated inflation are the main arguments in support of a faster normalization of policy. The minutes of the November 3rd FOMC meeting will also be scrutinized later this week.
  • With national lockdowns biting more acutely in Europe, localized on Austria but with risk of Germany following, yields in European markets sank sharply. Yields on 2yr bunds fell almost 4bps to -0.785% over the week while the 10yr bund yield fell 8bps to -0.344%.
  • Emerging market and high-yield bonds fell last week as investors moved out of riskier assets. In local currency markets, Turkish 10yr yields spiked 65pbs last week to close out at 19.305% following the CBRT’s decision to again cut rates, this time by 100bps. South African bonds also fell with yields up 14bps to 9.969%. In India, local currency 10yr government bonds managed to rally with yields falling by more than 2bps to 6.345%.


  • The Euro fell substantially last week as Austria reimposed national lockdowns and protests against public health measures gathered pace in other major economies. The risk of an economy as large as Germany’s reentering lockdown will weigh on the near-term investor confidence and we would expect euro assets to suffer as a result. EURUSD fell more than 1.3% last week, closing at 1.129, its lowest level since July last year.
  • Among the other major currency pairs, USDJPY held roughly stable over the week despite a run up to nearly 115 mid-week. GBPUSD gained by 0.3% on the back of high inflation prompting renewed expectations of a BoE rate hike in December.
  • Commodity currencies suffered thanks to a sell-off in raw materials last week. USDCAD rose 0.7% to 1.2640 while AUD fell more than 1.3% to 0.7235 and NZD fell nearly 0.6% to 0.7004.


  • Benchmark equity markets fell at the end of the week on renewed Covid-19 concerns with the Dow Jones down 0.75% and the S&P 500 giving up 0.14%. However, over the course of the week performance was more mixed with the S&P actually managing a gain of 0.3%, the NASDAQ up 1.2% and the Dow falling 1.4%.
  • European markets were more consistently negative, however, with both the FTSE and EuroStoxx falling, down 1.7% and 0.3% respectively.


  • The threat of lockdowns sank oil prices at the end of the week in an already soft market. Brent futures fell below USD 80/b for the first time since the start of October and closed at USD 78.89/b, down almost 4% for the week. The losses in WTI were worse, falling 5.8% last week to USD 76.10/b at the close. Near-dated time spreads fell sharply with 1-2 month spreads in Brent falling to USD 0.77/b from more than USD 1/b a week earlier while the expiration of Dec WTI pushed similar spreads in the US market much lower.
  • US president Joe Biden still hasn’t announced any plan on releasing crude from US strategic reserves but the threat of it, in conjunction with similar moves by other economies is weighing on the near-term outlook for oil. Japan’s prime minister, Fumio Kishida, has reportedly also considered releasing crude inventories.
  • Elsewhere in the US, the drilling rig count continues its steady ascent, with oil focused rigs up 7 to 461. The total rig count is still nearly one-third lower than its pre-pandemic level while total production in the US is just 13% below levels reported just ahead of the pandemic.

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