Market Update

While the Omicron variant is making waves in the news, this week also saw pivotal moves from central banks.
Post the European market closure on Wednesday, the latest Federal Open Market Committee statement came out. As anticipated (and as we discussed last week), the Fed confirmed they're hastening the tapering of their bond-buying initiative (QE), suggesting its conclusion early in 2022 instead of mid-year.
Interestingly, they also projected three interest rate hikes in 2023 and two in 2024. Although this seems tighter than prior expectations, given the US's robust economic growth and inflation rates, it's not as aggressive as past instances. In essence, the policy will likely maintain its supportive stance, with real interest rates remaining negative throughout the projected timeframe. US equity markets welcomed the statement, buoyed by Federal chair Jerome Powell's measured remarks.
There was also relief as the US finally decided to increase its debt ceiling ahead of the December 15 deadline, thus preventing a potential debt default and ensuring the government's smooth operation till 2023. Unfortunately, this ceiling adjustment will face scrutiny and potential adjustments again in the near future.
After the Fed, the UK's Monetary Policy Committee (MPC) made its move, hiking interest rates from 0.1% to 0.25% on Thursday. The bank acknowledged the solid labor market and rising inflation, even amidst Omicron uncertainties. This decision had a muted effect on equity markets, though it impacted UK government debt and sterling momentarily. The rate adjustment is a signal of the bank's proactive stance, but future moves will be carefully calibrated and contingent on data.
Following this, the European Central Bank (ECB) kept its headline interest rates unchanged. They hinted at the necessity to phase out emergency stimulus but opted for minimal program tweaks. Hence, market expectations for any ECB rate adjustments in 2022 remain low.
On Thursday evening, the Bank of Japan (BoJ) unveiled its monetary policy. Unlike its western counterparts, BoJ exercised caution in retracting stimulus, extending its timeline for withdrawal from pandemic-driven measures. The persistent inflation challenges in Japan influenced this stance.
In summary, though central banks showcased diverging stances this week, it's premature to predict rigid trajectories. This week's adjustments were foundational, and 2022 will offer a plethora of data to steer decisions. The lingering impacts of COVID-19 and its new variants on businesses and services can't be ignored. Hence, central banks will need to stay supportive and agile. Nevertheless, 2022 offers a plethora of opportunities for economies and equity markets.
As 2021 wraps up, economic chatter tends to diminish. Our subsequent planned update is slated for Tuesday, 4 January 2022. Rest assured, we remain at the helm, overseeing your investments during the festive season. Should any significant market events transpire, we'll be in touch. Lastly, here's wishing you and your loved ones a joyous Christmas and a prosperous New Year.