Market Commentary – December 13, 2021

Kevin Jock

13th December 2021

Wall Street ended Friday on a positive note alongside recovering back near record highs last week despite headline inflation figures beating expectations suggesting price pressure fears are already priced in or nearing its peak. Though not all smooth sailing as the week ahead among monetary policy announcements, the Federal Reserve is expected hasten tapering of quantitative easing on the increasingly likelihood of raising the benchmark cash rate in 2022. By sessions end, the S&P500 outperformed up 1%, followed by Nasdaq gaining 0,73% and Dow Jones moving forward by 0.6%.

Across the globe, gains in the UK and Europe were more tamer following Prime Minister Boris Johnsons’ warning that the nation is set to brace a “tidal wave” of Omicron infections whilst a recent study by Pfizer revealed inefficacies of the prevailing vaccination formulae, only 22.5% effective. Meanwhile, geopolitical tensions are on the fritz as Russia amasses additional arms on Ukraine’s border, risking war. The move condemned by the EU and US, threatening retaliation in the form of sanctions should an invasion break out.

Asia opened with a solid run with Australia and Japan rallying whilst Hong Kong gapped higher only to have gains retrace by mid-session. Remarks by China’s Communist Party’s top decision makers amid their three-day annual Central Economic Work Conference opened doors to additional fiscal stimulus early 2022 with fewer regulatory crackdown than that was seen in 2021.

The dollar benchmark lost ground on Friday, with crude oil shaking off Omicron implications to rise slightly to above $72. Turkish policy makers continue to intervene in an attempt to halt the lira’s freefall past the 14.00 mark. With the currency weakening 38% since September and inflation at 21% the centrals action implies their desire to weaken inflation and boost consumer demand.

For the week ahead, a plethora of monetary deliberations by the Fed, BOC, BOE and BOJ. Whilst the former is expected to act upon hawkish endeavors, the remaining central banks intend to align policy matters likewise, albeit at a glacial pace.

USDTRY-Dec-13-2021-05-23-16-10-AM

Figure 1 (Source: IS Prime) USDTRY Daily : Central bank intervention visible as the Turkish lira holds steady below the 14 mark.

Headliner to Review

  • Headline CPI figures out of the U.S. beat expectations at 0.8% whilst 0.7% was consensus, driven largely in party by continuing consumer demand and supply disruptions.
  • US sentiment rose better than expected at 70.4 from 67.4 but failed to take into account recent pessimism over Omicron.

Headliner to Watch

  • PPI numbers from the U.S expected to stabilize around 0.5% from 0.6%
  • Unemployment rate from the UK anticipated to improve from 4.3% to 4.2%.

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Authors:
Antony Tan
Kerry Man