(Bloomberg Opinion) --
What To Expect:
It was a rough autumn for most of the developed world as inflation sprung out of everywhere and took the shine off the pandemic recovery - but emerging markets fared even worse. The relentless strength of the dollar, combined with commodity prices screaming higher, piled the pressure on economies, forcing many to raise interest rates quite aggressively to protect their currencies. Now, it’s the turn of the developed world to start taking back the largess. Indeed, not adding any more QE is in itself a shock to the system. It will be bumpy.
If the U.S. Federal Reserve does raise rates in 2022, which looks increasingly likely, and bonds vote with their feet by rising in yield, this could provide quite the headwind for further equity gains. Suddenly, there might be a bit of competition on the block after a 20%-plus gain in the S&P. As bonds and equities both went higher in price with quantitative easing, it follows they could go down together too when the music stops. Yet the longer end of the U.S. yield curve is not pricing in rampant inflation. It’s quite the reverse, actually, being more fearful of recession. Something will have to give. If history is any guide, it will be ambitious central bank hiking plans at the first sign of an equity rout. Don’t run for the hills yet: There is still a lot stimulus in the system. But this will be a harder year to make money. The gravy train is slowing.
From the Year Behind Us:
For Central Banks, Omicron Is Another Way to Spell “Reset”: And reset is another word for “buying time” for policymakers caught between the end of stimulus and surging inflation.
No Doves Cry as Jens Weidmann Flies the Coop: The once fearsome hawk has resigned as head of Germany’s Bundesbank. It is a signal that another species rules the roost now.
Young Talent Isn’t Following the Money to Wall Street: Long hours, the pandemic and the lure of startups are taking their toll on recruitment for the traditional investment banks.
Be Careful Whose China Investment Advice You Take: Everyone has a point about putting your money in the second biggest economy in the world. But some folks want to sell you stuff.
Is This the Last Charge of the Stimulus Brigade?: The U.S. is closer to spending big on infrastructure. Beijing is pumping more credit into its economy. The IMF and the EU are doling out cash. What effect is all this money going to have?
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
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