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New COVID-19 variant may 'lead the central banks to keep the money spigots open,' strategist says

Opimas CEO Octavio Marenzi anticipates how the markets and central banks may react to economic conditions amid the emergence of the Omicron COVID variant.

Video transcript

ALEXIS CHRISTOFOROUS: Welcome back, everybody. The stock market holding on to some nice gains after President Biden told investors basically what they wanted to hear regarding the omicron variant. In an address to the nation earlier today, President Biden saying that it is reason for concern but not reason for panic and that we will not likely see shutdowns because of this variant. And as a result, investors are taking stocks higher.

I want to bring in Octavio Marenzi now. He is CEO of Opimas. And, Octavio, how much of this rally that we're seeing today is really about President Biden's remarks regarding the variant, or is this just investors seeing opportunity and jumping back in after Friday's sell-off?

OCTAVIO MARENZI: Well, I think the sell-off was clear because the panic-- the markets spooked and panicked because of this new variant that has come out. And I'm not sure how much Joe Biden really has an influence in terms of pouring oil in sort of troubled waters and making sure people feel OK about it.

But I think the assessment is basically looking to say, well, a little bit of a new variant might not be so bad because that's going to lead the central banks to keep the money spigots open and keep the very, very loose monetary policy going, and that would actually be very, very good for markets overall.

What, of course, would be bad is a very, very serious variants that really leads to economic pain and shutdowns. So if it's not too hot and not too cold, it might end up being very, very good for markets indeed because the money from the central banks will keep flowing. The Fed will see a reason to step back from its recent announcements that they're going to be tapering their bond purchases. They might say, well, hang on. It's a bit premature to do that. We're going to have to wait a bit until this variant disappears. The European Central Bank will probably follow suit on that. So the two big central banks will step in and say, yes, we should carry on pumping money into the markets. And if the variant is not so bad, then that's pretty good for markets overall. So we might expect the markets to do very, very nicely on this.

- And then, sir, I want to ask you, you know, what does this do to the inflation picture if, for example, there are further lockdowns, you know, around the world, not necessarily here in this country? Demand is still high. Inflation is still in the picture. What does it do to the inflation picture overall? And how--

OCTAVIO MARENZI: Well--

[INTERPOSING VOICES]

- And then also how carefully does the Fed have to tread in this particular situation?

OCTAVIO MARENZI: Well, it's funny that you ask about lockdowns around the world because I'm actually in Vienna in Austria right now, and we're right in the middle of a deep, deep lockdown in the icy cold. So it feels very, very isolating right now.

In terms of what it does to inflation, well, it's not good for inflation, obviously, because more money coming in is going to drive the inflation numbers higher. So that is the downside of that kind of monetary policy, and I think that's a problem that might manifest itself even worse a year or a year and a half down the road if this is the path we're going to go down.

But I do expect now that in Europe we'll certainly see that. We'll see the European Central Bank because a lot of Europe is looking at going to lockdowns, has sort of light lockdowns already, has travel restrictions in place as well. We are basically back to where we were in early 2020. So it feels a bit like we're doing this whole year again, that awful year, 2020. It feels like we're at the beginning of it again and doing the whole thing once over.

ALEXIS CHRISTOFOROUS: Octavio, we spoke to a market strategist earlier, Paul Schatz at Heritage Capital, and I asked him if he thought the omicron variant was the number-one threat right now to the bull market, and he said it wasn't even in his top 10. I'm curious where it stands for you.

OCTAVIO MARENZI: Well, I think it's certainly near the top. I wouldn't say it's not in the top 10.

I think the biggest threat to the market is that the central banks pull back the monetary support too quickly and that craters the markets, and I think there's a very, very real risk of that. And I think omicron plays into that, so I think those things are related.

And as I said, I think it will lead to the central banks having a softer, more dovish approach to withdrawing that monetary support they've had. So I think it might end up being good overall.

But certainly if it's really a bad variant-- and I'm not a virologist, and I'm not an epidemiologist. I have no idea how this is going to play out. But I do see a risk there. There certainly is a risk. We are seeing things shut down again with travel restrictions being put back in place. Certain countries are locking down again. It might well come to the US as well.

So I wouldn't write that off and say it's not in the top 10. I think that would be pretty foolish to do that.

- Octavio, I want to turn your attention a little bit to the consumer side of things. Confidence is starting to wane, right, but we're not seeing that impact quite yet because consumers have been out shopping up a storm despite being met with higher prices over the last few months. So where is the inflection point? Where do they put their hands up and say, you know, this is it? Wage growth is still strong. What do you expect to see? You know, it's supposed to be the biggest shopping day of the year, Cyber Monday. What do you expect to see from sales today?

OCTAVIO MARENZI: Well, I mean, we saw Black Friday came in very, very strong indeed on Friday. So that was up about 40% year on year. It was a bit of an odd Black Friday because traditionally shops had been open on Thanksgiving, and in 2020 and '21, largely they were not. So a lot of that shopping activity was concentrated in that one Friday. So Black Friday looks a lot more impressive than it otherwise would have because it was up 40%. But if you look to the whole weekend, things were up I think in sort of low-double-digit numbers but still pretty good overall.

The thing that was really surprising in those numbers was how weak online growth was, or maybe it's not surprising. I think there was a lot of pent-up demand to actually go out physically and go shopping and a lot of uncertainty about supply chains, and so people really want to make sure they got the physical goods in their hands and didn't order it online and be then at the mercy of something delivered at some future uncertain date.

So we saw online sales really grow fairly in anemic fashion. I mean, they still grew about 5%, but that's pretty tame for the online world that's used to sort of really high-double-digit growth.

So I think we're going to see a repeat of that on Cyber Monday that we'll see things pretty tame in terms of the online world-- and Cyber Monday is, of course, all about online sales-- and that we're going to see sort of low-single-digit growth overall. I think that's the direction we're going to go today.

ALEXIS CHRISTOFOROUS: All right, Octavio Marenzi, CEO of Opimas, good luck there in Austria, you said you are? Yeah. All right, well, best of luck to you there. I know that they're going through a lockdown of their own at the moment.

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