Will emerging markets have a better 2022, or is it downhill from here?

Emerging market equities had a dismal year in 2021. John Stepek asks if 2022 will be any better, and takes a look at some of the most promising areas for investors.

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Market Update – December 23 – Risk On; as USD softens

The risk of needing to stay in hospital for patients with the Omicron variant of COVID-19 is 40% to 45% lower than for patients with the Delta variant – Imperial College, London

“The unpredictable path of the pandemic and its related impacts on growth and inflation continue to dominate investor risk appetite,” – Invesco

• USD (USDIndex 96.00) sinks to key level as US stocks rallied again and Yields also rose; USOil breached $72.00 and Gold broke $1800 as the USD weakened. Risk back on, & a weaker JPY & CHF in rather low volume markets. Asian markets also higher again. OMICRON; signs of market boredom continues – Inflation a bigger risk than Covid-19 the mantra for 2022. 
• US Yields 10yr traded up to  1.457% and trades at 1.46% now 
• Equities – USA500 +47 (+1.02%) at 4696 (still below key 4700)  Nasdaq +1.18%, – USA500.F trades up at  4698. #TSLA +7.49% (Musk said he’d sold all the shares he is selling – for now) APPL +1.53%, GOOGL +2%
• USOil – rallied again – inventories -4.7m barrels vs -2.4m peaked at $72.76, as sentiment lifts, the low inventories and increasing demand. 
• Gold – broke $1800 on the weaker USD, holds  1805 level now.
• FX markets – EURUSD 1.1328, USDJPY rallies to 114.25, Cable to 1.3363

European Open – German import price inflation jumped to 24.7% y/y in November, from 21.7% y/y in the previous month. The March 10-year Bund future is down 7 ticks, slightly underperforming U.S. futures. More pressure then for bonds, which already declined yesterday as stock markets improved. However, while governments in Berlin and London have shied away from “canceling Christmas” with even tighter restrictions, more virus measures are underway for next week to prevent a spike in the number of those forced into quarantine disrupting essential services. DAX and FTSE 100 futures are currently posting gains of around 0.5%,  Hawkish comments from ECB’s Schnabel yesterday highlighted that even the ECB is on the way to phase out stimulus now, even though it will continue to lag Fed and BoE.  Trading is likely to start to dry up ahead of the holiday weekend, which in Germany and the U.S. essentially starts tomorrow and in the U.K. is extended until next Tuesday.

Today – US Personal Income, Consumption, PCE Price Index, Durable Goods, New Home Sales

Biggest FX Mover @ (07:30 GMT) NZDJPY (+0.46%) Continues the rally from Tuesday as JPY weakens on budget announcements, breached 78.00 now. MAs aligned higher, MACD signal line & histogram higher,  RSI & Stochs  OB, H1 ATR 0.112 Daily ATR 0.7500.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our written permission.

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Dollar Edges Lower as Confidence Over Omicron Supports High Yielders

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USDJPY, H4 | Potential For Pullback

Type: Bearish ReversalKey Levels:Resistance: 114.514Pivot: 114.253Support: 113.681Preferred Case:Prices are consolidating in a parallel channel. We see the potential for a dip from our Pivot at 114.253 in line with 100% Fibonacci extension and 78.6% Fibonacci extension towards our 1st support at 113.681 in line with 61.8% Fibonacci retracement and 61.8% Fibonacci extension. Ichimoku clouds are forecasting the dip and also our RSI is close to a level where dips previously occurred.Alternative Scenario:Alternatively, prices may climb towards our 1st resistance at 114.514 in line with 127.2% and 100% Fibonacci extension.

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COVID Restrictions Returning Across Eurozone

Outlook DarkensThe near term outlook for the Euro has weakened dramatically in the face of the current omicron outbreak. Surging infection levels in the eurozone over Q3 worsened across Q4 as the omicron outbreak took hold. In light of the new wave, several countries were forced to take measures, of varying severity. However, as the outbreak continues and the weather grows colder into winter, we are seeing a worrying of trend of greater restrictions being announced. The fear is, that following Christmas (which is expected to see a spike in infections) and with the winter developing, greater restrictions will be needed in Q1.Restrictions ReturningRestrictions have returned in several key EZ countries such as France, Germany, Ireland, the Netherlands, Spain and Portugal. With Christmas approaching, many countries are setting out fresh restrictions, including Germany where the government announced this week that as of December 28th, private gatherings will be limited to ten people and nightclubs will be closed. In the Netherlands, restrictions are even tighter with the country currently in lockdown until mid-January.WHO WarningThe WHO warned this week over the risks from the current omicron outbreak in Europe, forecasting a “significant surge” in infections after Christmas. While initial data suggests that the new variant s milder than Delta, the issue is that high levels of infections still create a great deal of pressure on healthcare systems. Additionally, risks of serious illness remain elevated in the unvaccinated.Market ReactionIn terms of how markets are reacting to news of the current uptick in restrictions as we head into the end of the year, bond yields in the eurozone have been seen trading higher in recent days. Traders have been turning to safe-haven assets over higher yield, risk assets such as equities and commodities, a theme which is likely to develop further.Inflation ImpactStill, despite the risks around omicron, the impact on eurozone inflation is not clear cut. This week we heard ECB’s Muller warning over two-way inflation risks around omicron. Muller warned that a great deal of the impact on inflation will depend on how governments and companies respond to the virus. During an interview yesterday, Muller said: “If there are further lockdowns and sharp restrictions on the economy, demand could decline and more likely could result in downward pressure on inflation. On the other hand, if supply-chain problems, for instance, last longer due to omicron, there could be upward pressure on inflation.”Technical ViewsEURUSDFor now, EURUSD continues to trade within the tight block of consolidation between support at 1.1190 and resistance at 1.1377. With both MACD and RSI bullish, there is still a chance that we break higher here, in which case, I’ll be watching price as we test the bear channel top and resistance level around 1.1527. To the downside, if we roll from here, a break of 1.1190 will open a test of 1.10 next.

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UK GDP Softened In Q3 Ahead of Omicron

Weaker-Than-Expected GDPWith most of the recent news flow out of the UK focusing on the risks and uncertainty around omicron, the latest set of economic data released today had some disappointing news for GBP bulls. The Office for National Statistics released its Q3 GDP readings today which showed that UK economic activity was already slowing down, well ahead of the emergence of the omicron variant.Deficit WidensFinal UK Q3 GDP was seen at 1.1%, down from both the prior and expected 1.1%. Additionally, the UK current account deficit was seen expanding over the period to – £24.4billion. This marked a significant widening from the prior -£8.3 billion and a much deeper deficit than the -£15.8 billion deficit expected. Finally, revised business investment was also seen weaker than at expected at -2.5%, well below both the prior and expected 0.4% reading the market was looking for.Net-Trade The Main DragLooking at the breakdown of the GDP data, net trade was seen as one of the biggest downward pressures on growth with the UK trade balance seen falling to -1.9% over the prior. This was down from the -1.2% seen in the prior quarter and highlights a worrying trend in UK trade data. Given that this latest downturn in activity came in ahead of the return of the UK government’s “Plan B” measures, the fear now is that activity over Q4 will be even lower. Looking ahead, the risk of yet stricter measures from the government (particularly in Q1 2022), raises questions over the outlook for GBP into early next year.Omicron RisksThe government recently announced that no new measures will be brought in ahead of Christmas, along with the current isolation time having be cut from ten days to seven days. However, the government has said that it cannot rule out further restrictions and, given the worrying trajectory in infections (and the risks of a big spike around Christmas), the risks of a circuit breaker lockdown are growing, keeping the near term outlook fraught with downside risks for GBP.Technical ViewsGBPUSDFor now, GBPUSD continues to hold along the base of the bear channel from YTD highs. Price has carved out a tight block of consolidation along the 1.3196 level support and, with light trading ahead, looks unlikely to break in the next few days. In terms of levels to watch, the 1.3349 is the key upside level for bulls, a break of which will turn focus to 1.3461 and the channel top thereafter. To the downside, a break below 1.3196 will turn focus to 1.3031 next.

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Frisby’s Forecasts: how did my predictions for 2021 pan out?

Dominic Frisby looks back at the predictions he made at the start of the year and finds that, all things considered, he hasn't done badly at all.

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Investment Bank Outlook 22-12-2021

Credit AgricoleAsia overnight While the news flow remains mostly positive, the risk-on rally faded a little during the Asian session. US President, Joe Biden, continues to say he can get a deal done with Senator Joe Manchin on the Build Back Better bill and the US FDA is set to approve two Covid drug treatments from Pfizer and Merck & Company. Countries in the West also continue to quickly roll out booster jabs. Investors are seeing the climbing infection rates, however, and remain nervous. S&P500 futures were trading slightly in the red and most Asian bourses modestly higher at the time of writing. In G10 FX, the USD was the outperformer and the AUD and NZD the underperformers. The AUD was weighed down by reports of rapidly rising Covid cases in Australia.CIBCFX FlowsThe session started off good but reversed by midday Tokyo. I believed omicron fears, Bloomberg noted demand for risk remains shaky. Singapore announced freezing new ticket sales for vaccinated travel lanes for entry as the city-state looks to stem import of the omicron variant.AUD$ traded lower from morning’s high 0.7154. Initial risk-on saw some shorts covered by short term accounts. Expect to see some bids around 0.7100 linked to option strikes, do remember A$720mio of 0.7100 put will roll off tomorrow.EUR$ rose to 1.1294 where offers were talked about above 1.1300, they could also be linked to 1.1300 strikes due this week worth more than €2.6bn. Sentiment changed and EUR$ moved back to the 1.1270s.$YEN remained comfortably above 114.00, there was light buying for the Tokyo fix and activity stalled. While I am a bull, will come as no surprise that Japanese will likely cap 114.25-30. Keep in mind large strikes at 115.00 for this week, total more than $2bn. Not much heard about the downside, probably bids 113.50-60.The Loonie is strong, despite AUD$ weakening in the late morning, $CAD stayed near the lows. I believed there are people getting out of longs as well as A$CAD, ahead of tomorrow’s October GDP release. Our economist wrote heading into the omicron wave, Canada’s economy was speeding ahead. But now, with restrictions being reimposed and mobility likely to fall, that momentum is set to hit a speed bump early in the new year. Our call is in line with general consensus, +0.8% from +0.1% over the month. Seeing strong offers on topside.CitiA lens on the USUSD ticked higher during the Asian session, with the remainder of the G10 all in the red against the dollar. UST was flat on the day. Our trader Hideyuki Liu notes the following:–With each day bringing us ever closer to year-end, treasuries in today's Tokyo session were largely sideways. Long-end has remained their good bid from yesterday's 20y auction, with 5s30s trading around 65bp for much of the day. Flows were seen in buying in 5y to 30y from RM in moderate sizeElsewhereFX activity slumped, with our etraders noting interbank volumes were at 75% of averages. Leveraged names were seen buying GBP and SGD, while selling JPY, EUR, CAD and CNH. Meanwhile, Real Money was buying HKD, while selling JPY, AUD, and SGD.

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Dollar Edges Higher; Omicron, Hard-Line Russian Stance in Focus

from Forex News https://www.investing.com/news/forex-news/dollar-edges-higher-omicron-hardline-russian-stance-in-focus-2720337
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Market Update – December 22 – Stocks recover poise

“COVID remains a threat to the global economy. Initial evidence suggests the Omicron variant is more transmissible but results in less severe illness compared to previous variants,” – CBA

• USD (USDIndex 96.50) held onto gains as US stocks recovered all of Monday’s losses, as Yields also rose; USOil rose 3.7% breaking back over $70.00 and Gold once again pivots at $1788. Risk back on, & a weaker JPY & CHF. Asian markets also higher again. Huge spike in European wholesale power prices – OMICRON signs of market boredom? – Biden orders 500 million free at-home tests, UK & US cut contact isolation times from 7- to 5-days, Israel offers a 4th dose of the COVID-19 vaccination to people over 60.
• Turkish Lira holds on to gains for now USDTRY at 12.60.
• US Yields 10yr traded up to  1.487% and trades at 1.46% now 
• Equities – USA500 +81 (+1.78%) at 4649 Dow +1.6%, Nasdaq +2.4% – USA500.F trades up at  4634. Nike +6.15% & Micron +10.54% after earnings beat. Other movers; TSLA +4.29% & CITRIX +13.63% as takeover target. PFE -3.39% & MRNA -2.98%
• USOil – rallied 3.7%  peaking at $71.45, as sentiment lifts, low inventories and increasing demand. 
• Gold – once again rejected $1800 and pivots around the key 1788 level .
• FX markets – EURUSD 1.1264, USDJPY rallies to 114.15, Cable recovers form 1.3200 to 1.3255 now

Overnight – BOJ Minutes: “See need to keep monetary easing despite costs” (no surprise).  UK Q3 GDP unexpectedly revised down to 1.1% q/q from 1.3% q/q reported initially. Business investment -2.5% vs. 0.4% and Current account deficit leapt to -£24.4b vs. -£15.8 expected and -£8.6b in previous quarter.

European Open – The March 10-year Bund future is up 16 ticks at 173.47, matching moves in Treasury futures. The long end outperformed and 30-year futures have been rallying overnight, as the risk on rally in stocks started to run out of steam overnight.  DAX and FTSE 100 futures are still posting gains of 0.45 and 0.3% respectively, but US futures are fractionally lower, as virus developments and the outlook for US fiscal stimulus remains in focus. In Europe most governments seems to be shying away from imposing stricter lockdown measures this side of the Christmas holidays, but that may mean more stringent measures are needed thereafter.

Today – US GDP, Consumer Confidence, Existing Home Sales

Biggest FX Mover @ (07:30 GMT) GBPCHF (+0.31%) Bounced from from test of  1.2150 lows Monday & Tuesday to 1.2270 now. MAs aligned higher, MACD signal line & histogram higher but stalling over 0 line since mid-Tuesday, RSI 68 & rising, H1 ATR 0.0012 Daily ATR 0.0087.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our written permission.

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Aussie Higher Following Hawkish RBA Minutes

Optimistic Tone From RBAThe Aussie Dollar has seen better demand across the early European session on Tuesday following the release of the RBA meeting minutes overnight. The minutes from the bank’s December meeting saw the central bank striking a broadly optimistic tone as it highlighted plans to press ahead with tapering in 2022, due to end in May. Additionally, the minutes showed that the bank discussed more aggressive options also, including ending asset purchases as early as February if economic data performed better than current forecasts. A further option under discussion was to taper in February and reassess in May if economic activity was slower than forecast.Labour Market ImprovingWith many central banks within the G10 shifting their sights towards tightening, the RBA is among one of the more hawkish. The central bank opted to keep monetary policy on hold in December allowing until the December meeting to give time for the omicron variant to be properly assessed. However, the tone of the meeting was firmly encouraging with the minutes noting that “Timely indicators suggested that economic activity, particularly household consumption, was recovering strongly. Leading indicators of labor demand pointed to a strong recovery in labor market conditions in coming months. ”Indeed, the bank’s last meeting came ahead of the latest Aussie employment data which showed hitting rising to record number last month, sending the unemployment rate lower still.In terms of the options discussed at the meeting, the RBA noted “These options reflected the expectation that the economy would continue to bounce back”. Looking ahead, the RBA noted that “The emergence of the omicron variant was a new source of uncertainty, but it was not expected to derail the recovery.”Inflation Still An IssueThe key sticking point for the RBA continues to be inflation and, within that, wage-growth specifically. The bank noted that inflation is likely to remain subdued in the near term and rates will not be lifted until prices are back in the 2% - 3% target band. On this point, the minutes noted that “This will require the labor market to be tight enough to generate wages growth that is materially higher than it is currently, this is likely to take some time and the board is prepared to be patient.”In all, the minutes were highly supportive of the back progressing along with tightening plans when it meets again February, provided omicron hasn’t damaged the economic recovery. Given that it is still early days in this wave, however, it is still too early to tell just how damaging the omicron outbreak will prove, adding cause for some uncertainty near term.Technical ViewsAUDCADThe rally off the bear channel low and .8959 - .9026 support region has seen price trading back firmly above the .9112 level. Price is now approaching the bear channel top and .9251 / .9267 resistance region. With both MACD and RSI firmly bullish, a break above this region will mark a strong bullish development, turning focus to .9391 next.

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The IndeX Files 21-12-2021

Risk Sentiment Stabilises Following Monday's Sell-OffBenchmark global equities indices are seeing better buying on Tuesday amidst a mild recovery in risk appetite. There is still a great deal of caution around the omicron news flow. However, for now it seems that sentiment has improved since the heavy selling we saw across the European open yesterday. In the UK, the PM avoided adding fresh COVID restrictions ahead of Christmas, which has allowed for better trading in UK assets. While further restrictions have not been ruled out following the holiday, there is at least a sense of relief at having avoided restrictions ahead of the festive period.Still despite, the sight rebound seen so far today, equities remain down from recent highs and the near-term outlook remains vulnerable to fresh downside shocks. In Europe, the situation remains precarious with increasing numbers of countries adding fresh restrictions and, in some cases, lockdowns. New Zealand announced this week that it will delay its planned border reopening in the New Year while it assesses the risk from Omicron. In the US, plans to return workers to the office have been postponed in many regions as a result of omicron, once again underscoring the uncertainty around the new variant.Looking ahead this week, traders will be keen to receive the latest US core PCE figure on Thursday. A strong reading will no doubt give the Dollar a boost, weighing on equities as a result of bolstered Fed tightening expectations. However, given the holiday In the US and Europe on Friday, trading is expected to remain light.Technical ViewsDAXThe DAX remains below the broken rising trend line for now, following the rebound off the 15078.83 level. Between there and 14791.27 is a major support region for the DAX. While price holds above here, the longer-term focus is on a continuation higher. Below there marks a bearish shift and will turn focus towards the 14170.79 level next.S&P 500The S&P has turned lower from the latest test of the 4692.75 level. For now, price is being supported by the rising channel low, just ahead of the 4475.25 level. While above here, the focus is on an eventual break higher with 4937.50 the next big upside marker to note. To the downside, a break of 4475.25 turns the focus to 4295.75 next.FTSEThe correction lower from 7362.6 saw the FTSE breaking below the 7241 level and testing below 7137 also, where buyers stepped back in. Price has since been driven sharply back above the 724 level and, with both MACD and RSI turned higher, the focus is now once again on further upside with a break of 7362.6 targeting 7444.3 next.NIKKEIFor now, the NIKKEI continues to trade around the midpoint of the large contracting triangle pattern, still straddling the 28356.6 level. With indicators mostly flat here and the market having lost momentum, further range action looks likely. The key levels to watch for an upside or downside break, respectively, are 29464.9 and 27422.9.

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In praise of profits – Ed Yardeni’s stirring defence of capitalism

It is commonly held that the average American's income has not risen for decades. But in truth, real earnings have been rising by 1.5% since 1995. And that's down to one thing, says Max King: capitalism.

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Investment Bank Outlook 21-12-2021

Credit AgricoleFX FlowsRisk oversold? US equity futures up, most of Asian indices are positive.RBA published minutes for the December meeting, board members recognized that the omicron variant had introduced additional uncertainty, but believe that it is unlikely to derail Australia's recovery. Our macro strategist Patrick said RBA will raise rates later than most elsewhere. Limited price action for AUD$, attempts to take this lower but felt like bids are planted below 0.7100. And there are more than A$1bn of 0.7100 strikes maturing this week. Small risk-on has taken the pair to 0.7115.$YEN traded lower on back of Tokyo fixing supply but came back up when risk sentiment improved. Exporters should have interests on topside as we approach month-end while buyers sitting near 113.30CAD recovered against the USD, thanks to oil futures and AUD$. We should see sell orders scattered on top and a barrier at 1.3000. In our Monthly FX Outlook, our economics team said outperformance in Canada’s labour market shows that slack is rapidly vanishing, and inflation is well above target. Omicron is likely to see a setback in services employment and a weak Q1 GDP print. Our outlook for 150 bps in BoC rate hikes in the next two years, divided equally between 2022 and 2023, is a bit more drawn out than market pricing. Also weighing on the Loonie in early 2022 will be a lack of upside in commodities. We see $CAD around 1.29 over Q1 and 1.30 for Q2.One overnight commentary said offers in EUR$ above 1.1300, no mention of names but I suspect these are from those eager to rid of long position. UST yields are higher, risk is on and EUR$ nudged up. Germany will release January GfK consumer confidence today, market expects it to slip to -2.7 from -1.6. Two option strikes rolling off Thursday December 23. €1.73bn at 1.1225, €1.2bn at 1.1300. Jeremy Stretch wrote that unless fiscal policy proves significantly more expansive than anticipated, a long period of ECB policy inertia, set against firming expectations for Fed hawkishness, underlines our bias for the EUR to remain on the defensive in 2022. We see EUR$ at 1.11 over Q1 and then 1.10 in Q2.CitiEuropean OpenLow volumes across asset classes signal that we have entered a festive mood as we near Christmas. USD traded flat, with the remainder of G10 currencies trading mixed against it. EM currencies fared similarly, trading mostly flat. Omicron risks were top of mind, with news from the Associated Press yesterday that Omicron is the dominant strain in the US. New Zealand delayed its border reopening due to the omicron variant concerns as well. RBA minutes were broadly in line with earlier messaging. Regardless, equities and oil ticked higher modestly today.We will see consumer confidence prints from EUR today, with Germany GfK Consumer Confidence at 07:00 GMT and Eurozone Consumer Confidence at 15:00 GMT. GBP will sight PSNB ex Banking Groups at 07:00 GMT, while SEK will receive the Economic Tendency Survey at 08:00 GMT. CAD sees Retail Sales at 13:30 GMT. In the EM space, HKD receives CPI at 08:30 GMT and COP will receive its monetary policy minutes at 22:00 GMT.

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