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Is Santa coming to town for UK investors this December?

The much acclaimed ‘Santa Rally’ – a term used for the traditional seasonal increase in stock market values in the last weeks of December – once again has investors looking for gifts in the market.

Two-thirds of Decembers between 1960 and 2020 have seen a Santa Rally, but the emergence of the Omicron strain of the Covid-19 virus has led many to question: will there be anything under the tree for traders this year?

OUR VIEW: The annual speculation about a Santa Rally is as traditional as mince pies, but the years of historic precedent for this festive phenomenon are definitely enticing for traders.

‘Financial markets and the global economy are going into this period with a degree of nervousness, with a new Covid strain and the potential for momentous central bank decisions set to drive further volatility. Reactions to these new developments might provide opportunities for traders to find value and boost their position for the end of the year, as many will draw back from the recent bullishness across markets and look to rebalance portfolios for 2022.

‘Omicron is threatening to be the coal in traders’ stockings this year, but with a peak-pandemic rally last December and the disappointment of 2018 still fresh in memories, it shows there are complex drivers behind this festive tradition. Traders should be ready for a few more weeks of uncertainty, but they might yet find good tidings in time for Christmas.’

Shafiq Shabir, Head of Electronic Trading, Intertrader

For those looking for stock market gains this December, these are some areas to watch that could play grinch to your investments:

  1. A Bank of England Christmas rate hike: will they or won’t they?

Traders are eagerly watching UK interest rates this month with many speculating that a potential rise from the Bank of England (BoE) could take place when policymakers meet on 16 December. Inflation continues to be a headache for the Bank and this may lead policymakers to increase UK rates before Christmas to ease this burden. Andrew Bailey’s failure to increase rates in November, to the surprise of everyone, has left market professionals guessing what could be in the Governor’s stocking this month. Either way, the BoE’s rate decision will be closely monitored by markets this month and will no doubt have consequences for the Santa Rally.

  1. Will the new Covid variant place a strain on your investments?

The emergence of the new Covid strain dubbed ‘Omicron’ has already rattled global markets this past week with indices across the world taking a dip. Furthermore, the CEO of drugmaker Moderna has predicted that existing vaccines will be less effective against Omicron, sending global stock markets even lower. While data on the spread of the new variant is still in its infancy, breaking news on the strain from governments and the World Health Organisation could disrupt the Santa Rally. As always with the Covid-19 pandemic, nervousness will be felt by many traders.

  1. All I want for Christmas is less uncertainty

Amid the uncertainty for markets over the next month, the winners remain hard to spot and opportunities for gain are unclear. Rising inflation, volatile energy prices, and the new variant leave the financial playing field hard to read in the months ahead. A different set of tools will be necessary for this period and traders will be closely looking across a range of asset classes and markets to find financial gain.

Published: 6 December 2021

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is a macro summary of scheduled news announcements and is not investment advice, independent research or an investment recommendation. The information provided is believed to be accurate at the date the information is produced.

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