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  1. This fall recap and overview of key drivers for Q1
  2. Q1 FX & Gold Outlook
  3. Q1 Crude Outlook: Dangers skewed to draw back
  4. Q 1 International Inventory Market Outlook
  5. Q1 Crypto Outlook
     
By Fawad Razaqzada
The worldwide inventory markets traded combined in This fall 2021, with the key indices in US and Europe managing to claw again a few of their losses suffered within the third quarter. The fourth quarter itself was fairly risky. October was usually a optimistic month, whereas November and begin of December noticed traders abandon threat as considerations over the financial influence of omicron variant of Covid, surging inflationary pressures and financial tightening from main central banks all weighed on sentiment. However as we went to press within the closing week of the month earlier than Christmas, the markets managed to claw again their losses suffered earlier within the month. Buyers had been relieved by scientific proof that though extra infectious, there weren’t as many extreme sicknesses attributable to Omicron because the Delta variant. This left the key indices on observe to finish the yr with strong good points:
Supply: ThinkMarkets; *costs and index ranges appropriate as of 23 December 2021
 
The FX markets had been pretty contained in This fall, with the US greenback remaining bid towards all the key currencies owing to a extra hawkish central financial institution. The Fed introduced in December that – due to NOT transitory inflation – it was rushing up tapering of its QE purchases and finish the programme by March 2022, whereas the median FOMC projections pointed to 3 fee will increase within the yr forward. This was in sharp distinction to the European Central Financial institution and Financial institution of Japan’s financial coverage updates, retaining their respective currencies below strain. The ECB did nevertheless flip a bit hawkish as inflation surged greater in Eurozone too, pushed by an power crunch. Rising costs of oil and fuel weighed on currencies of oil client nations like Japan, whereas supporting producer nations’ currencies such because the Canadian greenback. The Financial institution of England lastly raised rates of interest by 25 foundation factors, offering solely average help to the pound, with sterling being held again by considerations that the financial system would weaken as Omicron variant triggered a recent wave of restrictions within the nation. On the time of writing, within the final week earlier than Christmas, the greenback remained head and shoulders above the remainder:
Supply: ThinkMarkets; *costs appropriate as of 23 December 2021
The buck rose extra profoundly towards rising market currencies, most notably the lira. The beleaguered Turkish forex slumped to repeated document lows, as regardless of excessive ranges of inflation the nation’s President Recep Tayyip Erdoğan ordered the CBRT to maintain chopping rates of interest. A few of the different EM currencies fared barely higher, with the Chinese language yuan fully bucking the development. Total, although, it hasn’t been quarter or certainly a yr for EM currencies as an entire:

Supply: ThinkMarkets; *costs appropriate as of 23 December 2021
 
The important thing drivers behind the forex and fairness markets have been inflation, due partially to surging commodity costs and provide chain points. Within the fourth quarter, nevertheless, power costs got here again down, and this helped to cut back the general yearly good points. Treasured steel costs have been below strain all yr lengthy resulting from elevated bond yields and a stronger US greenback, with traders not too eager to purchase gold as a hedge towards hovering inflation. 

Supply: ThinkMarkets; *costs and proper as of 23 December 2021
 
Other than the truth that each the US greenback and world bond yields each rose, the one different purpose why gold was disliked was most likely resulting from this:
Supply: ThinkMarkets; *costs appropriate as of 23 December 2021
Bitcoin and Etheruem added extra to their 2021 good points in This fall, whereas some cryptos consolidated their good points. Investor urge for food remained insatiable for many of the yr, though November and December weren’t nice months for crypto as threat property suffered throughout the board.

Q1 Outlook Overview: Key Drivers

 
Heading into the primary quarter of 2022, considerations over the financial influence of the coronavirus and excessive ranges of inflation will proceed to dictate market and coverage path alike. Buyers will need to know what steps governments and central banks may take to stem value pressures, and on the similar time, maintain their respective economies ticking over as the most recent covid-linked restrictions weigh on exercise. With governments world wide sharply growing fiscal spending through the pandemic, introducing additional stimulus measures with out elevating taxes will probably be politically very troublesome. Likewise, central banks have pushed themselves right into a nook. Absolutely, they are going to be much less eager to ramp up bond purchases once more, with inflation being so excessive. If something, the Fed could not even wait till the center of subsequent yr to lift rates of interest and will additionally wrap up bond purchases sooner, if inflation heats up much more within the subsequent couple of months. What the Fed decides may even have massive ramifications for the greenback and commodities like gold and silver. Will gold lastly reply to inflation, or will the greenback once more show too sizzling for the dear steel? Elsewhere in commodities, the OPEC+ has a troublesome resolution to make. Whereas oil costs have fallen again a tad, they nonetheless stay fairly excessive. The group is about to spice up its oil output by one other 400K barrels per day in January, however the newest covid-linked journey restrictions might imply a pause in future output hikes. And what about crypto – extra of the identical or a yr of consolidation?

 

By Victor Golovtchenko
 
The outlook for the primary quarter of 2022, is primarily contingent on the actions of the US Federal Reserve, in addition to Covid.
 

How Far Can the Fed Tighten Earlier than Breaking One thing?

 
With the USD rally lasting by 2021, the optimistic information for the buck seems to have reached a plateau, with extra hawkish speak from Fed officers not translating into a fair greater trade fee. Our workforce considers the perfect days for the US forex throughout this cycle to be behind us, although assuming sturdy macroeconomic knowledge in Q1, we would see one other stab greater within the USD index, at the moment buying and selling round 96.00. The extent has confirmed to be essential over the previous 3 years, and the market is taking a breath of recent air earlier than trying a extra decisive transfer above (or under) this sturdy resistance space.
 
Greenback index every day chart:
Supply: ThinkMarkets and TradingView.com
 

BoE hikes and UK authorities offers extra help

 
The primary main central financial institution to hike charges was in truth the Financial institution of England and whereas it took a few days, the GBP rallied throughout the board, torpedoing the remainder of the FX market right into a defensive stance. The repeatedly evolving coronavirus remains to be the principle concern for the UK financial system, although fiscal measures focusing on companies affected most by the most recent pandemic developments, had been unveiled by Chancellor the Exchequer, Rishi Sunak, final week. The announcement coincided with the lows for the GBP, which gave again all of its fee hike-related good points within the two subsequent classes.
 

ECB reluctantly turns barely hawkish

 
The euro seems to be on the defensive towards most main FX counterparts, and rangebound towards the USD. ECB and BOJ policymakers have been reluctant to shift their tone to a extra hawkish one, remaining the one main central banks to remain pat within the face repeatedly rising inflation pressures. Mrs Lagarde must proceed strolling a decent rope, because the well being of the European banking system is far totally different when in comparison with throughout the Atlantic. Her dovish stance was just lately bolstered, however the appointments of a brand new Head of the Bundesbank who’s anticipated to be fairly hawkish, offered some short-term aid for the EUR bulls in current classes.
 

Commodity FX weak

 
Commodity currencies seem to have bottomed out for now, because the market awaits extra macroeconomic cues that would affect commodities markets. With nearly all the main central banks on their technique to tighten financial coverage, a risk-off episode might nonetheless provide some upside for the USD, and strain commodities and antipodean currencies (AUD, CAD, NZD). Shares proceed buying and selling close to all-time highs each by way of nominal worth, and valuations.
 

Gold outlook stays murky

 
Gold continues to commerce in tight ranges, and in anticipating that the Fed will ultimately “break” the liquidity pipeline, any selloffs are met with swift demand. Whereas nearly all of market gamers stay bullish on valuable metals, a liquidity-driven selloff might additionally briefly influence this sector of the market. That mentioned, gold bulls couldn’t have prayed for a greater state of affairs for a multi-year bullish breakout, but the present macro atmosphere remains to be not yielding a decisive breakout above $2000. Finally it is going to all come all the way down to financial coverage as soon as once more.
 

Damned in the event that they do, damned in the event that they don’t

 
The US Federal Reserve is within the unenviable place to decide on between persistently excessive inflation numbers, and persistently overvalued monetary markets that help the financial system. The fiscal impulse seems to be waning and inflationary pressures in 2022 are unlikely to match those we’ve seen over the previous two years. Even with out financial tightening, the fiscal aspect of coverage is already sufficient to gradual development materially within the first half of the approaching yr. Chair Powell has been persistent in speaking to the market that coverage is about to tighten, and a few market gamers are forecasting the primary hike as early as March.
 
 

 
Monetary markets are at the moment pricing in three hikes for subsequent yr – March, June and Dec. A fourth hike at first of 2023 can also be on the playing cards. All of this whereas the midterm elections are incoming subsequent yr, and the democrats are prone to lose the Home and get pressured exhausting within the Senate. Ought to this state of affairs unfold, the fiscal impulse till 2024 is unlikely to be optimistic for the inventory market – one more nail within the coffin of threat sentiment.
 
Retaining a detailed eye on the yield curve, and an inversion that normally indicators that the Fed has certainly overtightened – normally simply the time when the USD begins turning. To sum up – the important thing for the outlook for the USD through the first months of 2021 is how far can the Fed actually tighten earlier than breaking one thing. Because the financial cycle turns, the final bouts of power within the buck will inevitably disappear and a brand new cycle of weak spot might ensue. 
 

By Fawad Razaqzada
 
Within the fourth quarter, oil costs ended a run of six straight quarters of wins, though managed to rebound sharply in December as preliminary knowledge confirmed that omicron is relatively much less harmful than delta. Nonetheless, the very speedy unfold of the brand new variant noticed governments take measures to gradual the unfold. Many European international locations banned travellers from the UK, whereas Chinese language authorities locked down a metropolis of 13 million individuals. There was some resistance to extra extreme curbs within the US and Europe. Whether or not that resistance holds or folds, will rely on how the virus state of affairs will evolve within the coming weeks.
 
Demand for oil has possible weakened considerably already as a result of journey restrictions, whereas provides have continued to develop. Which means that the strain on oil costs are prone to ease again if the OPEC+ goes forward with its deliberate output hike of 400K barrels per day of oil in January.
 
Past the quick outlook, I can’t see how crude oil costs will rise considerably additional. The OPEC+ stays dedicated to progressively launch extra oil to the market in 2022, for so long as the worst-case state of affairs from the pandemic doesn’t play out.
 
Development in demand might additionally gradual due to (1) EM forex disaster in a number of oil-importing nations as USD extends its rally and (2) provide bottlenecks and the return of lockdowns might undermine the financial restoration in additional developed economies, at a time when fiscal and financial polices have already been – or almost – exhausted. In the meantime, US oil provide is on the rise once more. The crude oil market is thus unlikely to stay tight, which means costs might weaken considerably.
 
From a technical standpoint, the $70 help goes to be pivotal for Brent oil costs. Nevertheless, Brent’s long-term bearish development line has been reclaimed by the bears, which implies short-term rallies might get offered into as you possibly can see on this month-to-month chart:
 

Supply: ThinkMarkets and TradingView.com
 
 
 
 

 

By Kearabilwe Nonyana
At first of This fall, world markets had been on a optimistic floor as US earnings for world tech corporations had been predicted to extend and present strong development. What was revealed was even higher, as US tech giants shocked with their third quarter outcomes, spurring on US indices to hit recent excessive and helped to maintain sentiment supported for world markets. Other than surging inflation, the opposite most typical theme within the final quarter of 2021 was the market’s fascination with what the FOMC implied with its rhetoric on financial coverage and the trail of future rates of interest. The Fed has alluded that it’s going to taper bond shopping for, though this doesn’t essentially imply the faucets on bond shopping for will probably be shut fully. I anticipate excessive ranges of liquidity to nonetheless influence the efficiency of the fairness capital markets throughout the globe, because the seek for inflation-beating returns are wanted by traders.
 

Looking forward to Q1

 
Beneath, I’ve mentioned a few of the necessary themes which might influence the inventory markets in Q1 2022, and probably past.

Inflation outlook

 
In current months, inflation has elevated sharply in superior in addition to rising market economies. Value pressures have been pushed largely by (1) sturdy demand as economies re-opened, (2) provide chain shortages and (3) quickly rising commodity costs. Many market individuals have been at loggerheads as to the way to interpret the hotter-than-expected world inflation on financial coverage and in flip inventory markets. There have been intensive debates as to the character of the inflation – is it structural and long-term, or is it short-term and transitory? For my part, long run inflation expectations are anchored and don’t pose any menace to cost stability. That mentioned, the shorter-term actions of threat property will probably be largely depending on how modifications in financial and monetary insurance policies are communicated to the market. The issue which I’ve noticed is that central banks and governments are discovering it troublesome to speak successfully with the market as to how they’re seeing inflation and the way they may react.
 
CPI knowledge for varied nation teams as given by the IMF:

Bond Yield attractiveness

 
Within the seek for yield prior to now 2 years, the fairness market has had little or no competitors. Bond yields had been at all-time lows as open market operation pushed them to near- or sub-zero; accommodative financial coverage led to totally different asset courses equivalent to cryptos being the one competitors for equities. With central bankers alluding to tightening financial coverage, this makes bonds enticing for yield-seekers. As yields rise, equities will turn into more and more dangerous given their extraordinarily excessive valuations. Some traders will begin preferring the relative security of bonds on condition that they’re now offering a pretty different by way of yields in comparison with, for instance, the US expertise sector. Nevertheless, not all sectors will probably be negatively impacted by rising yields. Banks and monetary shares are likely to do nicely when bond yields are on the rise.
 

Development is your buddy

 
International fairness markets are nonetheless in an upward development despite the fact that many indices world wide have reached all-time highs. The threats to world provide chains nonetheless linger within the forefront to any optimistic good points within the first quarter and threats of the contagion impact of the unfold of the Omicron variant. However consensus forecasts of earnings being on the upside, the market will take favourably to corporates performing nicely and reward the scores on the shares that do nicely.
 

Volatility

 
The unfold between the money VIX and longest dated, most energetic, futures contract which is dated for finish of February has proven a bigger than anticipated divergence just lately. That is normally an indicator of upper anticipated volatility or change in sentiment. The VIX remains to be very far off its highs in the beginning of the pandemic however is edging greater, so anticipate a spike in brief time period volatility in Q1. Even so, I nonetheless anticipate that world markets stay at elevated ranges and optimistic returns on world shares will probably be seen in 2022.

Overbought

 
From a technical standpoint, all the key indices seem overbought on their longer-term chart. For instance, check out the RSI on the month-to-month chart of US30, which it’s reaching technically overbought territory of round 70:

 
Although it has had a correction prior to now month as fears of the omicron variant threatened to decelerate financial development, it stays to be seen whether or not we are going to see some additional short-term weak spot. With that correction, the market already took some alternative to come back again and purchase the dips.
 
 
 

 

By Carl Capolingua
 
Fairly a bit has occurred since our final quarterly crypto replace, however exercise and volatility is what we’ve got come to anticipate from this thrilling asset class! Listed here are the important thing developments from the final three months, after which we’ll conclude with a sit up for the elements which will influence cryptocurrencies within the first quarter of 2022.
 

Lastly, a Bitcoin ETF, however spot-based product is elusive

 
The primary bitcoin-based ETF commenced buying and selling on the New York Inventory Alternate on October 18. The ProShares Bitcoin Technique ETF tracks the motion of quite a few Bitcoin futures contracts. While Bitcoin costs noticed a powerful run-up in anticipation of the launch, the shortage approval of a spot-based Bitcoin ETF was seen as a disappointment by many, and probably acted as a catalyst for the next correction in Bitcoin costs.
 
As of now, there are three bitcoin ETFs buying and selling within the U.S. with at the very least two spot-based merchandise into consideration by the SEC (they’ve rejected two spot bitcoin ETF proposals in current weeks, one from Knowledge Tree, and one from Van Eck). The rejects will little doubt find yourself again on the SEC’s desk earlier than too lengthy and can be part of different spot-based hopefuls Grayscale’s Bitcoin Belief and Bitwise’s Bitcoin ETP which have choices pending in early February 2022.
 

Take me all the way down to Bitcoin Metropolis…

 
After its official adoption of Bitcoin as authorized tender in Q3, El-Salvador stored shopping for the dip trough This fall. President Nayib Bukele tweeted a number of occasions over the past couple of months that his nation continued to construct its Bitcoin reserves on value weak spot. Curiously, as the value of Bitcoin has settled firmly within the doldrums under the psychological US$50k mark, it seems the dip shopping for has stopped for now.
In different ES developments, Bukele proposed in late-November his nation would construct a brand new metropolis devoted to Bitcoin mining. The mining can be powered by volcanic power as town, dubbed “Bitcoin Metropolis”, would sit on the base of certainly one of El-Salvador’s energetic volcanos. Residents of Bitcoin Metropolis can be freed from revenue, property, and capital good points taxes. El-Salvador intends to situation $US1billion of “volcano bonds” to pay for constructing town, of which half can be directed to purchasing Bitcoin.
 

JP flips, crypto dips

 
Bitcoin began This fall with a rocket beneath it because it as many traders started to imagine US$100k by years’ finish. Sometimes, when the market will get that assured, a correction is usually within the playing cards, and this time was no exception. While it did take out its April all-time-highs, Bitcoin faltered just below US$70k and has since steadily declined into the mid-US$40k’s. Trying ahead, traders can look elsewhere till Bitcoin breaks again above at the very least US$51k.
 

 
Working towards Bitcoin and the broader cryptocurrency universe was a serious hawkish tilt by US Federal Reserve Chairman Jerome Powell. The flip adopted considerably worse than anticipated inflation knowledge all through the quarter, and maybe not coincidentally, his reappointment as Fed chairman for an additional 4-year time period. Bitcoin, and certainly cryptocurrency as an asset class, stays a confidence and liquidity recreation. Because the Fed appears to take away liquidity from the monetary system, that is anticipated to have a adverse influence on the supply of sizzling cash that has sought out these extremely risky property all through 2021.
 
Fed coverage will little doubt be a serious stumbling block for crypto in 2022, and crypto traders must be on their toes looking forward to indicators liquidity goes to be faraway from the system sooner than initially anticipated. The following Federal Open Market Committee (FOMC) assembly, and subsequently catalyst for additional crypto volatility, is tentatively set for January 25-26 2022.
 

ADA, DOT, LINK slip, AVAX, LUNA acquire on DeFi

 
The overwhelming majority of altcoins suffered fates far worse than Bitcoin approximate 30% fall throughout This fall. Within the High 20, Cardano’s ADA (-44%), Polkadot’s DOT (-60%), and Chainlink’s LINK (-50%) had been the worst performers. Two altcoins that prospered nevertheless, had been Avalanche’s AVAX (+77%) and Terra’s LUNA (+113%). Every noticed a gradual enhance within the quantity of DeFi exercise showing on their blockchains.
 

 
One of the crucial generally used metrics for measuring DeFi adoption on a selected blockchain is “Whole Worth Locked” or TVL. Avalanche’s TVL rose from 2.1% on the finish of Q3 to only over 5% on the time of writing, whereas Terra’s TVL elevated from 4.9% to 7.5%. Each blockchains took market share from DeFi juggernaut Ethereum, which noticed its share of the TVL pie fall by round 4% over the quarter. Each the technicals, and the TVL traits for AVAX and LUNA stay sturdy, so crypto traders could want to pay nearer consideration to them in Q1 2022.
 

 
 

2022 goes to be all concerning the ‘R’ phrase

 
It is maybe inevitable (well-known final phrases!) that we’ll see a spot-based Bitcoin ETF in 2022, and all eyes will probably be on the SEC’s choices for Grayscale’s and Bitwise’s choices on Feb 6 and Feb 1 respectively.
 
Extra broadly, the SEC has taken an more and more harder stance on cryptocurrencies and cryptocurrency companies over the course of This fall. That is prone to proceed into 2022 as Chair Gary Gensler has indicated that he needs further layers of safety put in place for crypto traders. On the Yahoo.com All Markets Summit held in late October, he mentioned: “Buyers aren’t protected the best way they’re [in the] the inventory or bonds markets that we have overseen so lengthy. With out that, I believe it truly is…a little bit of the Wild West.”
 
Elsewhere, Russia’s stance in the direction of its residents holding crypto property seems to be hardening with rumours the Central Financial institution of Russia is contemplating a complete ban on the acquisition of crypto property. However, in Australia, Federal Treasurer Josh Friedenberg a mooted a “complete funds and crypto-asset reform plan” which may very well be finalised by the tip of 2022.
 
Clearly the crypto market wants extra regulation to guard traders and supply safeguards within the occasion of nefarious exercise. It is a vital step in the direction of the widespread adoption of crypto as an asset class. We anticipate 2022 goes to be a defining yr in crypto regulation as quite a few governments transfer nearer to backing up their rhetoric with laws.
 

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