Global markets end 2021 near record highs; oil heads for biggest jump since 2009 – business live

Back in London, the FTSE 100 is ending a good year on a low note.

It’s still down this morning, off 24 points or 0.3% at 7379 points, with three-quarters of the index in the red, and an hour’s trading to go.

Among sectors, utilities, healthcare, consumer goods and services firms, industrial stocks, financials, miners and tech are lower, while real estate and energy are up.

Global stock markets are ending the year close to record highs.

The MSCI World Index has surged around 17% this year, and is just 0.5% away from the record highs set in November (before omicron caused a selloff).

The flood of stimulus from central bankers and governments which started in the pandemic lifted markets through the year, along with optimism as economies reopened.

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The MSCI World Index of global stocks in 2021 Photograph: Refinitiv

But after these gains, valuations are relatively high — which is one of several crosswinds facing markets next year.

Matt Weller, global head of research at FOREX.com and City Index, says:

Generally speaking, higher starting valuations tend to be associated with lower future returns, though that relationship isn’t particularly strong over short ( 5 year) time horizons. Of course, bulls will argue that elevated valuation ratios are justified given the low yields on bonds, unprecedented liquidity injections, and comparatively high profit margins.

Notably, we may already be past “peak stimulus” globally. Across the major developed economies, fiscal policymakers are rapidly looking to rein in deficits to improve their balance sheets and mitigate inflation fears. Meanwhile, most major central banks are similarly looking to “normalize” monetary policy after cutting interest rates to 0% (or below in some cases!) and instituting massive asset purchase programs in recent years.

At the margin, government spending and interest rates will likely provide less of a tailwind for global indices in 2022 as compared to 2021 or 2020.

But despite the prospect of interest rates edging higher, equities should still benefit from the TINA (“There Is No Alternative”) trade in 2022, Weller adds;

Especially with inflation at multi-decade highs, the appeal of holding safe assets like cash and bonds is as low as ever; from massive financial institutions to individual mom-and-pop investors, everyone is feeling pressure to invest in stocks in order to maintain their purchasing power.

This dynamic, and the attendant low discount/hurdle rate for making new investments, should support global indices in the coming year.

Back in the markets, the pound has hit its highest level against the euro since February 2020.

Sterling has hit €1.1924, a 22-month high. It’s also trading at a seven-week high against the US dollar.

David Madden, market analyst at Equiti Capital, says:

Sterling has been trending higher since the Bank of England unexpectedly hiked rates this month. Also playing into the mix is the relatively subdued US dollar.

Last month, the greenback hit a 17-month high in the immediate aftermath of the Federal Reserve meeting, but since then it has been rangebound.

Although the US dollar has yet to retest the highs it set earlier this month, it hasn’t dropped that much either, in a way it seems as if it is taking a breather.

Customers with Nationwide bank accounts have reported problems with delayed incoming payments.

Some report they didn’t receive their wages overnight, leaving them unable to buy food, or fuel to get to work, or to pay outgoing bills.

Nationwide has tweeted that there was a delay processing incoming payments overnight, and that “everything is now working normally”.

But customers are understandably unhappy, especially as Nationwide also suffered system problems in the run-up to Christmas which prevented customers from sending or receiving money.

Consumers splashed out on online shopping, takeaways, home improvements and streaming subscriptions in 2021, as ongoing Covid restrictions limited where people could spend their money.

Households were more willing to splash their cash in 2021, and spending during the year was almost 6% higher than in 2019, according to a review of transactions by Barclaycard.

While non-essential shops remained closed at the start of the year, consumers spent their money online instead. Online retail spending surged by almost 88% in March 2021, compared with 2019, when it accounted for over half (52%) of all retail spend.

Spending on essential items rose by 11% over the 12 months, largely driven by supermarket shopping, which grew by more than 17%, as restaurants, cafes, pubs and other hospitality venues remained closed for several months of the year. Spending on takeaways and fast food climbed by 62%.

Consumers also spent considerably more on home entertainment, including on digital content and subscriptions, which rose by 47%, and electronics, which saw a 10% uplift in spending.

Online grocery shopping, a trend which looks set to continue beyond the pandemic, surged by over 97% during the year…..

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Related: Online shopping, pets and takeaways fuel surge in UK spending in 2021

Many agricultural commodity prices also rose sharply this year, driving up the cost of food.

Wheat and corn have gained more than 20% in 2021, lifted by strong demand and tight supplies, and pandemic disruption.

Soybean prices hit their highest level since 2012 back in May, but have since dipped back.

Both Malaysian palm oil and soybean oil added more than 30%, while arabica coffee rose almost 80% and hit 10-year highs earlier this month.

World food prices hit 10-year highs through the year, due to strong demand for wheat and dairy products and weather disruption (such as a severe drought in Brazil and heatwaves in the US)

The final trading session is underway…. and stocks are lower in London.

The FTSE 100 index has dropped by 33 points, or 0.44%, to 7370 points, away from the 22-month highs seen on Wednesday.

Distribution company Bunzl are the top faller, down 2.6%, followed by gambling group Flutter (-1.7%).

The blue-chip stock index is still up 14% for the year, though, which would be the best annual performance since 2016.

Oil prices are set to post their biggest annual gains in 12 years.

Crude prices are up over 50% this year, lifted by the economic recovery from the pandemic, and cautious supply increases by the Opec+ group.

Brent crude started 2021 at around $52 per barrel, but is ending the year close to $80/barrel, having hit three-year highs over $86 in October.

Energy demand picked up as lockdowns eased and travel resumed, while Opec and its allies supported prices by gradually increasing production each month.

Australian brokerage firm CommSec’s Chief Economist Craig James says (via Reuters):

“We’ve had Delta and Omicron and all manner of lockdowns and travel restrictions, but demand for oil has remained relatively firm.

You can attribute that to the effects of stimulus supporting demand and restrictions on supply.”

The jump in oil prices pushed UK petrol prices to their highest level on record this autumn, contributing to the cost of living crisis facing households, and the rising costs being juggled by businesses.

Related: UK petrol price hits all-time high amid oil market pressure