Conditions for 2022 are likely to be challenging. The Fed has projected that they will raise interest rates three times next year and that means that equity investors will be nervous of further stock gains, especially since the S&P500 rose over 25% last year. The difficulty investors face is that with bond yields at record lows and property prices looking very high where are the gains to be found? At this stage, it is unclear where the market is headed, but a deflationary environment with slowing growth and rising inflation still remains the base case. Investors will be watching in-coming data to test that narrative going forward. OPEC+ also met this week and managed to keep oil prices steady.
Other key events from the past week
- USD: ADP Employment, Jan 05: ADP jobs data came in very strong at 807K. This was way above the maximum expected figure of 500K. This kind of data points will affirm the Fed’s projection to hike three times in 2022
- US oil: OPEC reassures markets Jan 04: The OPEC+ meeting saw the 400K bpd production increase go ahead. However, OPEC+ also affirmed their view that they now saw demand for oil picking up in Q1 & Q2 for this year. Before New Year the EIA saw demand falling.
- UK: infections surge, investors shrug, Jan 06: Omicron is more transmissible as cases in the UK hit a record high of 200K. However, UK’s PM Johnson looks to ‘ride out’ the surging cases. Will other major economies avoid lockdowns by looking to ‘ride out’ high case numbers? If they do that could be positive for risk.
Key events for the coming week
- USD: Core CPI, Jan 12: The prices paid component of the US manufacturing PMI dipped unexpectedly last week. Will core CPI fall next week too? If we see inflation drop then watch for potential USD weakness out of the release.
- Seasonal trades: Platinum gains? Jan 13: Platinum still has great seasonals in place due to physical factory orders. It has gained 12 times in 15 years from Jan 09 to Feb 20. See the strong seasonal pattern here.
- USD: US retail sales, Jan 14: There is a saying, ‘never bet against the US consumer’. That saying will be scrutinised on Friday and the Fed’s projection for 3 rate hikes will be put to the test. Will the US consumer beat retail sales expectations?