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Europe and UK Start Making Plans to Live With Covid, U.S. Markets React Favorably to Powell Testifying & Airline Stocks Fligh High Despite Omicron and Staff Shortages

Europe and UK move closer to being “Done” with the pandemic

Infectious disease experts and historians alike say that pandemics end not with the end of disease, but rather when societies move on.  In other words when people are no longer afraid of the disease and return to normal behaviour or a new normal that isn’t driven by fear.

Earlier today the World Health Organization predicted that a tidal wave of Omicron infections would sweep through Europe from “West to East” with 50% of the population being infected within 6 to 8 weeks’ time.

With this in the background Spain called for a debate within Europe to consider treating Covid-19 as an endemic illness similar to flu.

💡 Spain’s PM Pedro Sanchez said:
“It’s a necessary debate; Science has given us the answer to protect ourselves,” Prime Minister Pedro Sanchez said in interview yesterday with radio station Cadena Ser, adding that the virus’ lethality has been dropping since the beginning of the pandemic. “We have to evaluate the evolution of COVID from pandemic to an endemic illness,”

Meanwhile in the United Kingdom, Prime Minister Boris Johnson is set to release plans for “living with Covid”.  The plan will reportedly outline changes coming in March that will reduce long-term restrictions to the point where the U.K. will be closer to some form of normal life than at any point since the first lockdown in March of 2020.

In European trading the FTSE increased by 0.62%, the DAX by 1.10% and Spain’s IBEX 35 rose by 0.56%.  European stock markets are up across the board to start the year, with Spain leading the way with a gain of 4.73% on the IBEX 35.

U.S. markets rally as Powell testifies

After a rough start to the year markets in the Unites States regained their footing on Tuesday as Federal Reserve Chairman, Jerome “Jay” Powell, went before a Senate Committee during his re-confirmation process.

Powell indicated that the Fed expects a normalization of global supply chains to help ease inflationary pressures but that the Fed stood ready to battle inflation while keeping employment high, saying:

 “If we have to raise interest rates more over time, we will. We will use our tools to get inflation back,”

Equities and fixed income reacted favorably to the Chairman’s testimony as no changes to the Fed’s previously signaled plans were announced.

At the end of U.S. trading the Dow was up 0.51%, while the S&P 500 rose 0.92% and the tech-laden NASDAQ regained some of its mojo with an increase of 1.41%.

Airline stocks ignore Omicron and staff shortages to fly high

Airline stocks have somewhat unexpectedly been some of the better performers to start 2022.  This is despite a fall off in demand amid increased travel restrictions and sickness as well as an acute shortage of labour.

Flight cancellations continued as airlines announced they have to rationalize operations to adjust for thousands of missing employees that need to stay home due to Omicron. 

💡 The only thing ‘non-stop’ are the flight cancellations
United Airlines made headlines as it announced 3,000 workers had called in sick today, and it would need to make further changes to its flight schedule.  This follows on from mass cancellation across the industry starting around Christmas and rolling into the New Year.

Ryanair has cancelled over a third of its flights in January and will be waiting to assess whether these will be reinstated in February or March.  Air Canada recently announced it would be ending service to the Cayman Islands and a number of other Caribbean destinations until “at least the end of April”.  Similar stories are unfolding across the industry.

Despite this string of bad news carriers are some of the best performers with healthy year to date gains.  United is the best performing U.S. airline stock with a gain of 7.13% so far in 2022.  However, Air Canada is up 8.47% and Ryanair has increased by a massive 15.4% to start the year.

“Inflation is taxation without legislation.”

– Milton Friedman

Richard Ellison, CFA CAIA



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