It has been a tempestuous start to 2022 for financial markets and we can expect more of the same as we head into the second half of January.
Expectations of monetary policy tightening against a backdrop of higher pricing pressures have resulted in the US Federal Reserve coming out with its most hawkish rhetoric yet. This has led to an increase in market volatility over the past few weeks.
US inflation pressures in December peaked at more than 40-year highs, data showed. The US consumer price index (CPI) – a measure of a weighted average of prices of a basket of consumer goods and services – increased by 0.5 per cent a month from November and by 7 per cent compared with a year ago.
The news only reinforced sentiment that the Fed will look to raise rates three times this year, with the first increase expected as early as its meeting in March. This confirmed the hawkish tilt by the Fed, which has all but dropped its “transitory inflation” lingo – the driving theme in 2021.
The effect has been felt in US stock markets. At the time of writing, the Dow Jones index was trading 1.5 per cent lower on the month while the S&P 500 index was lower by 2.55 per cent and the tech-heavy Nasdaq was down by more than 5 per cent.
Traditionally, stock market volatility increases during high inflationary periods and growth stocks generally tend to be hit harder, compared with value stocks, as a function of higher prices eroding current cash flows, which are lower in the latter.
As we look ahead, we do not expect too many comments from the Fed in the run-up to its meeting on January 26.
I expect the turbulence to continue as we enter into the fourth-quarter earnings season. Amid higher-than-expected earnings, cyclical stocks should outperform their technology counterparts, in line with the earlier explanation.
Looking at the currency markets, the euro and the British pound have, thus far, turned in a positive performance against the US dollar this month.
The British pound benefited from the Bank of England’s interest rate increase last month. Technically, the sterling has looked to test the channel above 1.3750, which should then expose 1.40 levels.
Fundamentally, there is a lot of key data coming out on the UK calendar this week but all focus will be on Bank of England governor Andrew Bailey’s views on future rates when he is due to speak on Wednesday.
The euro moved higher against the US dollar, trading above 1.14 on the Dubai Gold and Commodities Exchange (DGCX). I expect any further upward momentum to cease at 1.15 levels.
Commodity markets have performed well through the start of the year, headlined by strong crude oil prices.
The DGCX’s West Texas crude intermediary contract moved above $83 a barrel for the first time in two months and looks to test the more than seven-year high established in November 2021, above $85.
I expect the turbulence to continue as we enter into the fourth quarter earnings season
Gaurav Kashyap,
head of futures, EGM Futures
Finally, volatility continued in gold – prices have gyrated between $1,780 and $1,830 this month. With volatility expected to continue, look for this range to widen, with support coming in at the $1,740 level and upper resistance set to kick in above $1,870 on the DGCX.
Looking ahead, along with the Fed meeting on January 26, we await European inflation data on January 20 and the Bank of Canada rate decision and associated statement on January 26, too.
US gross domestic product figures will be released on January 27, with the country's economic output expected to have increased to 5.6 per cent quarter on quarter.
Gaurav Kashyap is head of futures at EGM Futures. The views and opinions expressed in this article are those of the author and do not reflect the views of EGM Futures
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UAE currency: the story behind the money in your pockets
The specs: 2018 Renault Koleos
Price, base: From Dh77,900
Engine: 2.5L, in-line four-cylinder
Transmission: Continuously variable transmission
Power: 170hp @ 6,000rpm
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Fuel economy, combined: 8.3L / 100km
Juliot Vinolia’s checklist for adopting alternate-day fasting
- Don’t do it more than once in three days
- Don’t go under 700 calories on fasting days
- Ensure there is sufficient water intake, as the body can go in dehydration mode
- Ensure there is enough roughage (fibre) in the food on fasting days as well
- Do not binge on processed or fatty foods on non-fasting days
- Complement fasting with plant-based foods, fruits, vegetables, seafood. Cut out processed meats and processed carbohydrates
- Manage your sleep
- People with existing gastric or mental health issues should avoid fasting
- Do not fast for prolonged periods without supervision by a qualified expert
Jeff Buckley: From Hallelujah To The Last Goodbye
By Dave Lory with Jim Irvin
Company profile
Date started: 2015
Founder: John Tsioris and Ioanna Angelidaki
Based: Dubai
Sector: Online grocery delivery
Staff: 200
Funding: Undisclosed, but investors include the Jabbar Internet Group and Venture Friends
Tearful appearance
Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.
Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.
She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.
A spokesman said her upset demeanour was due to a personal matter.
Results
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Europe wide
Some of French groups are threatening Friday to continue their journey to Brussels, the capital of Belgium and the European Union, and to meet up with drivers from other countries on Monday.
Belgian authorities joined French police in banning the threatened blockade. A similar lorry cavalcade was planned for Friday in Vienna but cancelled after authorities prohibited it.
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In-demand jobs and monthly salaries
- Technology expert in robotics and automation: Dh20,000 to Dh40,000
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Company%20profile
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Company info
Company name: Entrupy
Co-founders: Vidyuth Srinivasan, co-founder/chief executive, Ashlesh Sharma, co-founder/chief technology officer, Lakshmi Subramanian, co-founder/chief scientist
Based: New York, New York
Sector/About: Entrupy is a hardware-enabled SaaS company whose mission is to protect businesses, borders and consumers from transactions involving counterfeit goods.
Initial investment/Investors: Entrupy secured a $2.6m Series A funding round in 2017. The round was led by Tokyo-based Digital Garage and Daiwa Securities Group's jointly established venture arm, DG Lab Fund I Investment Limited Partnership, along with Zach Coelius.
Total customers: Entrupy’s customers include hundreds of secondary resellers, marketplaces and other retail organisations around the world. They are also testing with shipping companies as well as customs agencies to stop fake items from reaching the market in the first place.
Our legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants
The Melbourne Mercer Global Pension Index
The Melbourne Mercer Global Pension Index
Mazen Abukhater, principal and actuary at global consultancy Mercer, Middle East, says the company’s Melbourne Mercer Global Pension Index - which benchmarks 34 pension schemes across the globe to assess their adequacy, sustainability and integrity - included Saudi Arabia for the first time this year to offer a glimpse into the region.
The index highlighted fundamental issues for all 34 countries, such as a rapid ageing population and a low growth / low interest environment putting pressure on expected returns. It also highlighted the increasing popularity around the world of defined contribution schemes.
“Average life expectancy has been increasing by about three years every 10 years. Someone born in 1947 is expected to live until 85 whereas someone born in 2007 is expected to live to 103,” Mr Abukhater told the Mena Pensions Conference.
“Are our systems equipped to handle these kind of life expectancies in the future? If so many people retire at 60, they are going to be in retirement for 43 years – so we need to adapt our retirement age to our changing life expectancy.”
Saudi Arabia came in the middle of Mercer’s ranking with a score of 58.9. The report said the country's index could be raised by improving the minimum level of support for the poorest aged individuals and increasing the labour force participation rate at older ages as life expectancies rise.
Mr Abukhater said the challenges of an ageing population, increased life expectancy and some individuals relying solely on their government for financial support in their retirement years will put the system under strain.
“To relieve that pressure, governments need to consider whether it is time to switch to a defined contribution scheme so that individuals can supplement their own future with the help of government support,” he said.
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