In today’s briefing:
- What Will China’s On-Going Liquidity Squeeze Mean For World Markets in 2022?
- Hawkish Fed in 2022: Boosting the Importance of Stock Picking as Valuations Receive Less Support
- Cybersecurity/ Evergrande/ Covid/ Environment/ Hong Kong
- EA: Inflation Jumps at the Dec-21 Summit
What Will China’s On-Going Liquidity Squeeze Mean For World Markets in 2022?
- People’s Bank (PBoC) continues to pull liquidity out of Chinese money markets
- Broader index of Chinese monetary conditions set to fall into ‘tight’ regime
- Warns of sharper fall in World economy and weaker commodity prices
Hawkish Fed in 2022: Boosting the Importance of Stock Picking as Valuations Receive Less Support
- Fed Chair Powell eyes March to raise the federal funds rate, but pressure to delay has risen. The Fed is keen not to fall behind the inflation curve in 2022.
- Inflation forecasts could be critical in determining whether Fed policy guidance requires further hawkish adjustment. Labour market developments will, however, not be entirely overlooked in terms of adjusting policy settings.
- Fed policy lowered the equity risk premium and boosted equity valuations. Lack of Fed intervention in US Treasuries means outsized US equity portfolio gains will depend on stock picking.
Cybersecurity/ Evergrande/ Covid/ Environment/ Hong Kong
- The Cyberspace Administration of China set new rules requiring platform companies with data on more than one million users to undergo a security review before listing their shares overseas.
- Evergrande, the world’s most indebted developer was last week ordered to demolish 39 buildings of its flagship property project on Ocean Islands, for breaching building approval procedures.
- After a spike in Covid cases, China’s tough lockdown of the city of Xi’an has confined 13 million people to their homes and shuttered businesses.
EA: Inflation Jumps at the Dec-21 Summit
- Flash EA HICP inflation exceeded expectations again in Dec-21 by rising 10bps to 4.97%. There was a repeat of the upside pressure’s breadth that also infected the “core” .
- Jumping beyond what we expected to be the peak does not change our view that it will slow sharply in Jan-22 on normalising seasonal weightings and a VAT base effect.
- Nonetheless, the trend in surprises is uncomfortable for the ECB, which may not wait long in 2023 before it moves to hike rates
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