Daily Brief for January 12, 2022

Daily commentary for market and investment insights

What Happened in the Markets?

All financial indices ticked higher, even though economic data showed inflation at its highest level since 1982. Investors are confident that inflationary pressures are at their peak, which means good news for the economy.

According to data published by the Labor Department on Wednesday, the US inflation rate rose to 7% in December compared with 6.8% in November.

A few factors are causing a recent rotation away from growth stocks with the US labor market, the impending interest rate hikes by the Federal Reserve, and a sluggish global economy all being implicated.

Stocks are on the rise after their recent downfall. On Tuesday, Federal Reserve Chair Jay Powell committed to confronting high inflation and predicted that supply chain issues would eventually ease this year.

JPMorgan analysts have found that higher yields won’t cancel out the upside for the market. Economic growth exceeds expectations in developed markets – especially the US – and China’s economy is poised to rebound.

20220112 FOMC Interest Rate Probabilities
Source: CME Group

The current high inflation rates will fade as supply chain bottlenecks from the coronavirus lockdowns start to dismiss. As this happens, investors will become more supportive of equity markets.

The VIX market maker term structure is still pointing up, and volatility has fallen recently. The changed delta of an option leads to buying by the counterparty.

The International Monetary Fund is preparing to increase the loan demand this year as central banks tighten monetary policy and follow a borrowing spree among developing countries.

20220112 GDP Growth 2022-2021
Source: Bloomberg

Disclosure: This article expresses my own views, and I wrote the article by myself. I am not receiving compensation for it. I have no business relationship with any company whose security is mentioned in this article.

Sources: FT.com, Bloomberg, MarketWatch, WSJ.com

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The investment information, comments and recommendations contained herein are not subject to investment advice. The comments and recommendations contained herein are based on personal views. These views may not fit your financial situation and your risk and return preferences. For this reason, based only on the information contained herein, investment decisions may not have the appropriate outcome.