International Communique No. 321 – 18th of January 2022


Fears of faster rate hikes, potential upsets from earnings season and the spreading Omicron variant drove down the recent correction in major equity markets. The selling mainly targeted industrial and technology stocks. By contrast, emerging markets performed positively, with the broad index adding 2.5%, helped along by a weaker dollar. Oil-related stocks have continued gaining too, just as the Saudi energy minister said he was not concerned about the level of crude oil prices.

Inflation has spread and started to bite to an unexpected degree. More than half of its price components are rising by upwards of 5% year-on-year. Headline inflation could therefore remain above the Fed’s 2% target for a long time, which complicates matters for the central bank. Following record consumer and producer price data in December, the Fed looks set to raise the benchmark policy rate three times in 2022, as soon as the bond purchasing scheme has been wound down. But some are even thinking that there will more rate hikes in store.

Kicking off the quarterly earnings season, US banking majors delivered above-consensus results but of variable quality. Wells Fargo saw its profits jump 85% on the back of increased demand for loans. JP Morgan and Citigroup reported a 26% and 14% drop in earnings, respectively, on a weakening of trading income. Asset management colossus Blackrock saw its assets surge by 15% to new heights, topping USD 10 trillion.

China’s Q4 2021 GDP was higher than expected at 4% year-on-year but it nonetheless slowed relative to the previous quarter. Industrial production rose by 9.6% year-on-year, but consumer spending and property sales weakened. The Chinese economy is currently facing a triple whammy in the shape of a supply shock, a contraction in demand and issues triggered by debt-laden property companies. Coming to the rescue is the People’s Bank of China, with signature measure being a 10bp cut in the 12-month lending rate to 2.84%. One of the stated goals is to limit the cost of borrowing to encourage households to gear up.

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