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Ilaria & I want to thank all Building a Trader members for their support in 2021 and hope they are going into 2022 armed with the knowledge and confidence to tackle what looks like a more volatile year.
Consensus amongst sell-side analysts is that 2022 will be a year of policy transition and growth moderation. Following dramatic fiscal and monetary policy moves in 2020 and 2021, 2022 should see economies move toward a more normal state. Fiscal policy is expected to remain accommodative in Europe, and there is room for growth and cyclical strength if/when governments lift restrictions. However, continued supply-chain disruptions and an upsurge in demand that threaten to keep inflation high across many economies. Food price inflation may be an underestimated component of inflation going forward as energy prices pushed up ammonia and fertilizer prices. Tight labour markets and potentially stronger wage pressures may also come into play.
As such, many sell-side reports suggest 2022 conditions look similar to 2018. Support from central bank liquidity is fleeting. At the same time, near-record high inflation levels coupled with near-record low unemployment rates would suggest pressure on central banks to tighten policy. Central bank taper maneuvers may be reflected in slowing PMIs and declining order/inventory ratios which has strong correlation with earnings surprises and would pose headwinds to European equities into 2022. Also, yield curves have flattened substantially which is another precursor of lower growth prospects into 2022.
On the bright side, there have been numerous reports out recently stating that Omicron is much less threatening than Delta and even the uber-cautious WHO said that the pandemic will end in 2022.
So on this more positive note, we wish you all happy holidays and a great start to 2022!
Justin & Ilaria