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FTSE 100 fairytale ending to 2021 could prove short-lived

FTSE 100 fairytale ending

For the FTSE 100 to return to its highest level since February last year just as 2021 draws to a close feels like a fairytale ending, a Santa rally squared, but the fairytale could prove short-lived.

Despite Covid case numbers in countries around the world hitting record highs, and tighter restrictions being announced across the board, markets have clearly concluded the Omicron variant is not as serious a threat as many first thought.

It’s highly transmissible, that much is certain, but the growing consensus is that it’s not Delta Part Deux.

The most recent boost to markets came from John Bell, regius professor of medicine at Oxford University, who is also the government’s life sciences adviser. Bell said on Tuesday that the Omicron variant “appears to be less severe and many people spend a relatively short time in hospital”.

Like the Bank of England in its December interest rate decision, traders are betting that the Omicron variant will only weigh on near-term activity, but it’s a bold bet given the Everest economies globally are now facing.

The reality is that the economic fallout from Covid will last many years and will test markets in a way they have never been tested before.

Record high inflation, rising interest rates, debt-burdened businesses and consumers, and punitive taxation as economies set out to repay the gargantuan debts accrued during the pandemic have the potential to make the Global Financial Crisis look like a relatively minor market blip.

Once the festive feel-good factor has passed and we enter the dark winter months, there’s every chance the festive fizz will go flat, leaving the FTSE 100 flat on the canvas all over again.

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