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Three major market themes (and potential winners) for 2022

3 January 2022 Written by Lukman Otunuga  Senior Research Analyst at FXTM Lukman Otunuga

Last year, risk assets didn’t seem to have a care in the world. Roaring inflation? No worries. Central banks pulling back stimulus? So what? Delta and Omicron variants? Life goes on. Despite all of those seemingly worrying events, risk appetite demonstrated a remarkable resilience to overcome anything that was thrown in its path. Just look at how the S&P 500 posted 70 new record highs on the way to claiming a 27% advance for 2021. Still, markets could yet face a year of reckoning in 2022.

Here are three main themes that investors and traders would have to contend with and also the potential winners to look out for:

Stubborn Inflation

In recent months, the prices of goods and services in major economies have skyrocketed (as of Nov 2021):

Surging consumer prices are also a major consideration for investors who must choose which asset class could best protect their wealth and purchasing power against the erosive effects of inflation.

Potential winner: Gold

This precious metal is traditionally seen as a way to preserve one’s wealth (hedge) against inflation. However, gold also has an inverse relationship with the US dollar and US Treasury yields (i.e. when the dollar goes down, gold goes up, and vice versa). In short, gold could have a stellar 2022 if inflation continues surging and the dollar/Treasury yields are kept in check.

Fed rate hikes

The US Federal Reserve is the most important central bank in the world. And one of their main jobs is making sure that consumer prices don’t rise too much too fast. The main way they can keep inflation in check is by raising interest rates. As things stand, the Fed has indicated that they could hike rates 3 times in 2022. 

Potential winner: US dollar

Historically, higher US interest rates typically means a stronger greenback. This is because higher interest rates also usually mean higher yields for US Treasuries, prompting global investors to send more of their money towards US assets. This relationship is set to play out once more in 2022, unless the Fed has to hold back on rate hikes for fear of triggering a recession.

New Covid variant?

We’re entering the third year in this battle against Covid-19. So far, the global economy seems resilient enough to weather the Delta and Omicron variants. But what if we see a new variant of concern that winds back the pandemic clock? Pi is the next letter in the Greek Alphabet after omicron. Unless the WHO decides to skip a couple of letters again (like they did before deciding on Omicron), the world will be hoping that the 'life of pi' won’t bring us back to lockdowns that shutters the world economy once more. However, if this tragic turn of events does become reality in 2022 …

Potential winner: Swiss Franc

The Swiss Franc (CHF) is considered a safe haven currency, meaning to say that investors flock to it during times of heightened fear. Recall how CHF was one of the best-performing G10 currencies against the US dollar in 2020, and the Swiss franc also had an annual gain versus all other emerging-market currencies that year. In a major risk-off event, or a new variant of concern that upends the global economic recovery, expect safe haven currencies including the CHF to be well sought after.

Of course, the outlook for financial markets is too vast to be limited to just three themes. So here are five other events to keep an eye on that could rock various asset classes:

Whatever 2022 may spring on the world, it also promises plenty of opportunities for traders and investors. Hence, it remains vital that market participants stay sharp and keep tabs on major themes that could sway asset prices over this calendar year.


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