https://ift.tt/3n2Uv5d Financial Markets Poised For A Rocky Ride In 2022 – Cryptovibes.com – Daily Cryptocurrency and FX News

Economists say swelling inflation, rising interest rates, and further supply chain disruption will power volatility.

Experts have said in the face of soaring inflationary pressure, rising interest rates, and ongoing disruption to international supply chains caused by the Omicron variant of coronavirus, financial markets are poised for a bumpy ride in 2022.

With weaker levels of economic growth despite intensifying price pressures in already stretched supply chains, Omicron’s emergence had raised the prospect of a stagflationary start to the New Year, analysts and financial investors said. Also to weigh in on Europe’s economies is the winter energy crisis.

The head of investment analysis at AJ Bell, Laith Khalaf said:

“Covid vaccines and treatments will take some of the edge off any social disruption we may face, and while many businesses have learned to trade through the stops and starts of the pandemic, a return of substantial winter restrictions [in the UK] and abroad would be a blow for the global economy.”

While trying to rein in inflation, central banks are expected to raise interest rates or cut back on their multitrillion-dollar quantitative easing bond-buying stimulus programs, if the pandemic does not ease in 2022 as hoped. This month, the US Federal Reserve said it had anticipated increasing borrowing costs three times in 2022, which could spook markets and weaken a recovery that is already expected to slow in the coming year.

Analysts at the Japanese bank Nomura said:

“High inflation has central banks feeling the heat, but by late 2022 we see a very different backdrop, with stagnation a bigger risk than stagflation.”

Victor Golovtchenko of the online broker Think Markets stated:

“The US Fed was in the undesirable position of choosing between persistently high inflation numbers, and persistently overvalued financial markets.”

As a result, the coming year would be choppy for markets, a senior fixed-income strategist at the Dutch bank ABN Amro, Joost Beaumont added:

“We expect tighter global financial conditions, in particular from Fed rate hikes and rising US rates to again trigger bouts of volatility in markets.”

Eventually, the bond market must face a day of reckoning unless monetary policy never normalizes, AJ Bell’s Khalaf said. Also, he commented:

“It might be a gradual deflation rather than an explosive rupture, but it does look like a question of when not if. Long-dated government bonds would be most in the firing line, so bond investors could seek to protect themselves by looking to shorter-dated bonds, higher-yielding markets, and strategic funds that employ a flexible approach.”

Having unexpectedly lifted its main interest rate to 0.25% at its December meeting despite concerns over Omicron, the Bank of England is also expected to raise interest rates in 2022, perhaps two or three times. George Lagarias, the chief economist at Mazars, stated:

 “In a very different modus operandi from the last pandemic resurgence, central banks are now on a firm tightening road. We believe that for 2022, investors should at the very least be prepared for more volatility.”

While supplies struggled to meet demand after the easing of lockdown measures over the summer across advanced economies, surging energy prices in Europe and Asia drove inflation higher this year. In the short-term, inflation is expected to stay elevated then drop back through the year.

Bill Blain, a market strategist and the head of alternative assets at Shard Capital, said that the investors had failed to price in the winter energy crisis that is driving up bills and forcing some factories to suspend work. He mentioned:

“Markets are vastly underestimating just what higher power prices are going to do to corporate earnings and growth across the globe. Europe is particularly vulnerable, as fresh supply chain chaos could be caused by power outages and “industrial dislocation” in China.”

In a world that is dominated by high inflation and rising interest rates, high-growth but low-profitability tech stocks may fare badly. Many of those pandemic winners’ share prices such as Zoom and Peloton have already fallen back from record highs in 2021. Extreme growth-oriented stocks may continue to struggle, as explained by Paul Craig, a portfolio manager at Quilter Investors:

“We are potentially witnessing the end of the valuation bubble in emerging startups, hyper-growth, and companies wearing tech clothing, and it would not be a shock to see more pain going into 2022.”

If Joe Biden does not get his $1.75tn (£1.31tn) Build Back Better legislation through the Senate, where the Democratic senator Joe Manchin is blocking the package, the US economy could stutter.

In China, a slowdown or worse could also jolt markets in 2022. Nomura said that the worst is yet to come:

“Despite Beijing’s recent shift in policy stance, we expect growth to weaken further in spring 2022 on a worsening property sector, rising costs of the zero-Covid strategy, and export downturn, and widespread factory closures before and during the Winter Olympics. We expect Beijing to take more decisive action to arrest the downward spiral in spring 2022, and growth could bottom out after that.”

In the world’s second-largest economy, commodity prices could be pulled down by weaker growth. Oxford Economics projected that iron ore prices will end 2022 below current levels, while Beijing is expected to press its steel industries to help curb greenhouse gas emissions.

The chief strategist at Principal Global Investors, Seema Shah said particularly in emerging markets that higher vaccination rates will be crucial to fighting the pandemic and easing supply chain bottlenecks. Shah insisted:

“In 2022, governments in emerging market [EM] countries accelerating the pace of vaccination should become more tolerant of Covid and ease strict containment policies. This means some Covid-driven activity surges for EM still lie ahead, providing a promising opportunity to extend the reopening trade. It also likely implies less frequent factory and port closures.”

Moreover, with Russian troops massing at the Ukraine border, increased tensions between Taiwan and China, and elections in the US and France, there is the risk of geopolitical disruption on the horizon. The chief investment officer at Barclays Wealth and Investments, Will Hobbs, said:

“The straits of Taiwan have been heating up, as has Ukraine’s border with Russia. Right now, many will argue that the liberal democratic model is the one that looks a little more rickety. Upcoming elections will continue to be nervy affairs for a while yet – US midterms and French presidential elections are the ones to watch in 2022.”

Equities will keep rising in 2022, adding to strong gains in 2021 and 2021, most Wall Street banks have predicted.

For the start of 2022, Mark Haefele, the chief investment officer at UBS Global Wealth Management, has a positive outlook on stocks. He insisted:

“Global economic growth is likely to remain above trend for the first half of 2022, monetary policy is still accommodative, even if emergency support measures are being scaled back, and we expect 10% growth in global corporate earnings in the year ahead.”

However, as “there are too many similarities between today and 1999-2000 to ignore”, strategists at Bank of America predicted a slightly negative year.

Compared with other markets, the UK still stands out as cheap and unloved, Alex Wright, the portfolio manager of Fidelity’s special situations fund said. If foreign predators pounce on undervalued UK companies, that could mean further takeover action in the next 12 months. Wright highlighted:

“UK equities remain significantly undervalued compared to global markets and reasonably valued in absolute terms. This has been reflected in a meaningful uptick in M&A activity, which has been a key contributor to performance for our funds. We are likely to see more bids if valuation discounts compared to overseas companies do not close.”

But as the New Year approaches, dangers abound. Analysts at Generali investments said:

“The global main risks lie in a policy mistake causing financial havoc, a disorderly energy transition seeing a surge in selected commodity prices, and a nasty variant escaping vaccine protection.”