This Week In Markets: 13th - 17th December 2021

Okay, a very good day to you. It is Sunday the 12th of December. I hope you've had a fantastic weekend and a quick look ahead on what we can expect from the week. And as you can see here, I've got Kuroda, Lagarde, Powell, and Andrew Bailey, the governor of the Bank of England. And it's a really important week. It's the final kind of run-in now till Christmas and we get all of these central banks with their interest rate announcements. This week. We'll talk about that a little bit more in a moment, but just a quick look at the charts first, and then we'll talk about the weekend news, then the week ahead. And the one chart I really just wanted to focus on briefly was the S&P 500. In the cash market, we actually finished at record high territory on Friday, and of course this came irrespective of the fact that US CPI came in at its highest print in about 40 years, essentially. And despite then what you would imagine, which would be then this idea of accelerated tightening and therefore equities generally moving lower, equities actually rallied in a relief kind of way. And the reason for that really is that there was a lot of talk on the upside, particularly with Biden coming out looking to tame expectations and manage then a high side number. And the fact is it came in at 6.8%, which was actually very high but in line with expectations. And so somewhat relief. And actually if we put this onto a daily chart, you can see here in the futures market is the highest we've closed at this key kind of technical point of resistance that we've had at around 4711.75. So definitely keen to see how we end on this week. And do we finish as what, you know, historically, statistically, December, it's the best trading month of the year, um, looking at the last, I think it's 75 years worth of data. So yeah, Yeah, will the Santa Claus rally prevail? We'll find out really by the end of this week because then things will really start to quieten down once this week passes. But let's delve straight into the headlines first in the weekend and just briefly want to talk about the UK Omicron situation. Obviously it comes after the UK announced Plan B coming into action, um, some of it as of Monday, things like the work from home order. But the UK Education Secretary spoke today, Sunday, and said one-third of new COVID infections in London are now the Omicron variant, and cases in the UK are doubling every 2 to 3 days, as we know with that timeline of what Boris Johnson announced last week. On Sunday, they confirmed 1,239 new Omicron cases, and that's almost doubled from the day before we saw on Saturday. UK Prime Minister Boris Johnson is actually scheduled to address the nation tonight at 8 PM London time to provide an update on the vaccine booster program amid some of these concerns, with these numbers expected to go up, of course, over the case of the next few weeks. We're not expecting any new form of lockdown, Plan C type measures to come in. It's most likely just going to be an update. You're probably going to be hearing from him much more because things are going to get worse and he's going to want to try appear to be in control of the situation. From an optics point of view. So he's probably going to be doing those 5 p.m. press conferences, I would have thought, fairly regularly going forward now. But it's probably going to be more focused on the booster campaign. Before I move on, talk about the other stories in the weekend. Don't forget, Piers and I, co-founder of Amplify, had a chat on Friday and it was our final Market Maker podcast of the entire year. We'll restart them, of course, in January. But to give us both a bit of a break after we've, we've done nearly 50 episodes throughout the year. The last one is there and we do actually talk about what is Plan C, what might it look at, what might the conditions be that would warrant such action, and economically what might that mean, and ultimately for the Bank of England and their decision-making process. Check that out. And also we both pitch a stock actually. Won't go into too many details at this point in time, but out of the tech titans, we both put up an argument of which ones we think out of the big boys, so Alphabet, Amazon, the likes of Microsoft, Tesla— who's going to actually win over the long run? And quite an interesting perspective Pears gives on Alphabet, for one. Otherwise, the other major stories in the weekend were US and Russia. Foreign ministers of the G7 spoke today, Sunday, and they said they were united in condemnation of Russia's military buildup and aggressive rhetoric towards Ukraine. The US is pushing the government in Berlin to stop the Nord Stream 2, which is awaiting certification by Germany in the event that Russia invades Ukraine, according to people familiar with the matter. At this point in time, I don't really think that the market will react to any of this. It's just kind of the latest status quo. I guess the main thing is, is that the G7 are all aligned at this point, but I don't think you'd expect anything other against Putin and Russia on this particular issue of Ukraine. So yeah, let's see where it goes from here. But I wouldn't be expecting any, anything too great to materialize over this week, I would say. And the whole idea about using Nord Stream 2 is the kind of leverage point to control the Russians. I think that's nothing particularly new. They've been talking about that for a while. All right, well, let's talk about the week ahead. And actually, I want to jump back to the central banks. That really is the main focus focus. Um, starting off with the Bank of England here, Andrew Bailey, and it is no longer anticipated that they're going to hike rates when they meet later on this week on Thursday. Now don't forget, on Thursday you've got the Bank of England and the ECB literally just around 45 minutes apart from each other when it comes to the actual rate announcement. And obviously they will come the day after, on Wednesday, we get the Fed FOMC outcome. That evening. So for the Bank of England, the goalposts moved a little bit. Obviously inflation and US CPI is coming out in the UK later on this week, and it is expected to move, I think, to a decade high is the consensus, and it's probably going to go even higher than that in future months. However, Omicron is the main thing. Now that the UK is adopting Plan B, the likelihood is Plan C will come in time. It means now that the Bank of England are likely to adopt a wait-and-see approach to just see how much, how impactful the lockdowns are going to be in time. And a lot of this came after Michael Saunders, one of the two Bank of England rate setters that voted for a rise back in November. He said last week, or earlier this, this month, there could be advantages to waiting to see how Omicron affects the economy before tightening monetary policy. Now, the fact that you get one of your most outlying hawks makes such measured types assessment rather than just being an outlying hawkish mindset, um, really seals the deal that I don't think that they can hike at this point in time. So that's the latest on the Bank of England. For the Fed, and a couple things we can look at, this is quite an interesting graphic that really shows tapering. And obviously this is the main focal point when the Fed meet later on this week, and that's because, as we saw at the end of last week, inflation at such high levels at this point in time the labor market kind of plugging away at filling the, the pandemic void at this point, and the tightness of the labor market, what that might do for wages and so forth, the Fed are likely to accelerate their tapering, tapering program. So at the moment they're reducing that by around, um, $15 billion in terms of the, the size of bonds that they're— reduction of what they're buying every month. They're likely to double down on that and take that up to $30 $1.5 billion. And so here you can see this line here is when they were scheduled to end. You remember the actual communication from Powell was that it would be the middle of next year, basically the summer, going on pace of when they would then look to wrap up the process of tapering. So by doubling down, we then save kind of 3 months, and it should be March then by the time that happens. Now, this is very much kind of expected by the markets, but don't forget that in this FOMC meeting is the December one. So one of the four, every calendar sort of quarter, will get the press conference, but accompanied by the new set of economic projections. And the dot plots with individual interest rate projections, of course, will be particularly scrutinized for where they see rates then subsequently in 2022, '23, and thereafter. The other one then is the ECB. And yeah, good, good title here, Life After Pep. So So this being the pandemic emergency purchase program, the top-up, if you like, of a large magnitude size of their asset purchase program, which was in play already post or pre the pandemic. And they are set, the central bank in Europe, to reveal the parameters of future bond buying as they agree to end those emergency purchases, the PEPP, in March, as they previously flagged. A lot of the expectation has talked about basically for a short period of time upping, doubling the increase of the asset purchase program. I think it's currently 20 up to 40, just so that they can offset then the decrease of, of the stimulus coming from the PEP as they look to finish that at the end of Q1. So that's the kind of transition effect, just to sort of make it a more graduated withdrawal of stimulus rather than anything too drastic, particularly given the fact that mainland Europe even before Omicron has really hit, is already facing the Delta outbreaks, which is requiring quite onerous restrictions and lockdowns across the mainland at the moment. And then you've got the BOJ. Finally, um, the BOJ is kind of here where they're expected to decide as early as next week to scale back emergency funding deployed last year to combat the pandemic-induced cash crunch, according to sources on Reuters. And so generally following other central banks and gradually phasing out their crisis mode policies. There's one other central bank here. There are others actually that have decisions this week, but the other one of interest probably is Turkey. That's because their local currency has been hammered of late, and that's because their president Erdoğan is just insistent on the fact that they should keep cutting rates irrespective of the fact that their inflation rate is up at the kind of 20% region at this moment in time. This is a kind of brief history of the last several years. In fact, the Turkish lira, although it's accelerated in terms of its sell-off more recently, it certainly has been an ongoing trend. And if you'd like to check out this annotated graphic, you can grab it off my Twitter handle below. But essentially, they're going to meet on Thursday. So alongside the ECB and the Bank of England, Turkey will decide whether to halt interest rate cuts or just go again and lower rates another time. So it's going to be particularly interesting. Looking then on the rest of the week, what have we got? So going to jump to Tuesday. And on Tuesday, actually— well, excuse me, Wednesday— here is when we get the US retail sales figures. And they're expected to come in and post another decent outcome thanks to rising incomes and wealth providing a strong underpinning for spending, while industrial production also out should also grow strongly since the manufacturing surveys have all been pointing to robust activity according to analysts at ING. The other things then just to cover off on Wednesday, then we get the Chinese industrial production, retail sales, investment data numbers for November. They're going to be closely watched after we saw a pretty decent trade data figures last week from China, exports actually at record levels. And then you've got UK labor market data and inflation data, and these are going to be two of the final metrics that we get before the Bank of England then meet on Thursday. And as I said, the median forecast for UK CPI year-on-year is 4.7%, and that would be a decade-high figure. And then finally on Friday, the final one is the Flash PMIs. I don't think they're actually on here— or here we are, on Thursday, excuse me, not Friday. And the Flash PMIs, a couple of things, um, they're going to show a slight waning in sentiment according to current forecasts. The surveys will fully encapsulate the numerous COVID-related tightening measures implemented across the eurozone over November, early December period. So we are looking for a little bit of a tempering of those, those numbers this time around. So Um, that is it. I wish you all a fantastic week ahead. Any questions at all, feel free to drop me a comment. Otherwise, uh, that's it from me, and I'll see you tomorrow. Take care.