Market Strategist
Summary: Has the Santa rally began or will Fed tapering tip markets into Sin city. The ASX200 rose for the first time in 6 weeks up 1.6% on week, the US benchmark rose 3.8% on week, up for first time in 4 weeks, Oil rose 8% on week, up for first week in 8 weeks, above its 15 DMA. But could the US Fed potentially doubling tapering put markets into a spin. Do not forget the ECB, the BoE and BOJ meet too, Queensland borders reopen after five months, WA to announce reopening plans and global superyacht vessel under construction hit a record high.
Three of the big four ASX banks (WBC, ANZ, NAB) hold their AGMs, plus agriculture will be put in the spotlight as Elders and Incitec Pivot hold their AGMs. Plus see the most traded instruments at Saxo Markets Australia.
Firstly- What to watch as The Fed meets
Tapering and taking money out of the economy will be front and centre this week, with US Fed meeting to discuss interest rates, as well as the ECB, the BoE and BOJ. Inflation has spiked to a 39-year high and employment has grown, while the global economy recovered from last year’s 4.7% drop in real GPD to 5% growth in 2021. So this week Fed’s meeting is critical watch as the Fed been given a mandate by the White House to fight inflation (for the second time in history). And we know Friday’s US inflation print, showed CPI hit its highest level since 1982, rising 6.8% in November YOY. This means, the Fed could hike official rates sooner than expected. So what's next?
As pointed out in our Saxo Market Call, the Fed may double the pace of tapering from $15 per month to $30 billion, which could imply Tapering ends March 2022 (instead of mid-year), which removes the pandemic-era bond buying support scheme. This means the Fed could then enter an ‘increase rate increase cycle’, and look to increase official interest rates from April onwards (and potentially rise official interest rates a total of three times in 2022).
This means, liquidity will be removed from the market, impacting the economy, slowing spending and property price growth. For stocks, high growth and interest rate sensitive stocks (companies that have large debt) and lower serviceability could be hit. These must be watched. As our CIO pointed out, the market could stay in a 5% range until the future of tapering/rate hikes has been paved out. However, if we do see rates hiked in March, there’s a 30% probability equities fall 30% from their high.
For now, keep eye on volatility, the CBOE Volatility index has fallen to a one-month low, while the S&P500 has closed at a new all-time high, despite the the cost of living rising to its fastest pace in nearly 40 years. TINA is driving markets high, but markets are on edge.
Secondly, what else to watch, Australian analyst rating changes and the most traded
Thirdly - what else to watch this week
Companies in the news:
Economic news to watch this week
Markets - the numbers
The end of the road
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