From a sprint to a marathon — here’s next year’s top market themes

“We expect the cyclical recovery to continue in 2022, but the fastest pace of growth now lies behind us—we are moving from a sprint to a marathon,” they say. That means improving virus control and treatment, as well as pent-up saving and inventory rebuilding, will drive global GDP growth of 4.5%.

Inflation pressures will ease but still remain firm, leading to monetary policy tightening. In fact, markets are pricing in “the once unthinkable” — a European Central Bank exit from negative interest rates, though that may not come until 2024.

All that said, while there may be some near-term relief on supply constraints, markets have largely factored that in. “Our analysis suggests that equity and bond markets have priced more closely in line with a measure of ‘underlying’ inflation that excludes those supply-constrained goods segments. In other words, equities and long-dated bonds have been willing to look through the transitory bulge in inflation, but may also then look through the transitory relief from these same areas.”

Sector wise, services, travel and tourism will make a comeback due to waning medical risks. Asian assets may benefit as lockdowns ebb and policymakers abandon zero-COVID approaches. “Indonesia, Malaysia and Thailand have among the tightest effective lockdown indices in the world currently, so there is plenty of scope for a re-opening boost as these ease,” they say.

Their top trade recommendations are geared for institutions, with ideas including shorting the Australian dollar vs. the Canadian dollar
AUDCAD,
,
going long the Singapore dollar was the Taiwan dollar
SGDTWD,
,
and going long Mexican and Russian equities that are priced in dollars. In commodities, they advise going long December 2023 contracts for Brent crude oil
BRNZ23,

and copper
HGZ23,
.