US Equity markets closed out the ‘Santa Claus Rally’ in 2021, leaving gains of around 20% for the year, across the bourses. This was a monetary lead bull market, with fiscal stimulus flushing the consumer, funded by Central Bank expansionist monetary policy, across the world. 2022 may be when the piper is to be compensated? Inflation is the only block to fiscal and monetary insanity and it is coming down the track, like a freight train.
Central Banks will be forced to abandon QE and begin QT, while embarking on an era of sharp interest rate rises. Record debt levels, both across the private and public sector, will sorely test the ability to service debt and will result in a massive realignment. Massive asset bubbles, could be punctured, so inflation will be the focus in the New Year.
The first week of 2022 is thick with global economic data releases headlined by inflation and PMI data. Growth and inflation will be the market focus for the week and the year. The USD died in the final hours of 2021, allowing the EUR to bonce to 1.1380, while the GBP jumped back to 1.3530.
Commodity currencies also benefitted the flagging reserve, with the AUD breaking above 0.7250, while the NZD consolidated above 0.6800. Currencies will be driven by Central Bank policy and rising interest rates will determine how they compete. Bond Markets will be very important indicators in the coming year.