US markets were stronger in the month, with the Dow Jones up +5.4% and S&P500 gaining +4.4% to finish 2021 nearly +27% higher, its biggest annual percentage gain since 2019 and its third straight positive year. Sentiment improved as a trio of studies found that the omicron variant led to lower hospitalization risk than the delta strain, and Pfizer Inc’s and Merck & Co’s Covid-19 pill gained clearance for emergency use in the U.S.
European markets gained with the Stoxx Europe 600 gaining +5.4% and ending 2021 up +22% to clinch a seventh consecutive quarter of gains, the longest winning streak since 1998, whilst the UK FTSE was up +4.6% and German DAX up +5.2%.
Asian markets were higher, with the Shanghai Composite rising +2.1%, as sentiment was boosted after PBOC vowed to maintain stable monetary policy in 2022 and provide sufficient liquidity for the market. The finance ministry also announced it would proactively roll-out fiscal policies to stabilize growth, with greater cuts in taxes and fees planned for 2022 and State Council announced China will extend some personal income tax cuts over two years, cutting personal income taxes by 110bn yuan in 2022 and 2023. The Nikkei was up +3.5% and KOSPI up +4.9%.
Commodities
Over the month, WTI oil price gained +14.2% to US$75.21/bbl, as declining U.S. crude stockpiles, an energy crunch in Europe and disruptions to supply from Libya and Nigeria added to bullish sentiment. OPEC+ proceeded with their scheduled oil-production hike of 400k barrels a day of crude in January and approved a 400k barrel-a-day increase in production scheduled for February, however, predicted global supplies are on track to be tighter in 1Q22 than previously expected with a surplus of 1.4m barrels a day in 1Q22, about 25% less than it estimated a month ago.
Political News from Around the Globe…
- Geopolitical tensions flared up with U.S. President Joe Biden warning Russian President that the U.S. and its European allies would respond with strong economic measures to respond to an attack on Ukraine and would provide additional defensive material to the Ukrainians.
- U.S-China tensions continued to simmer with the Biden administration adding 34 Chinese targets to its banned-entity list and signing into law a bill banning goods from China’s Xinjiang region unless companies can prove they aren’t made with forced labor.
- President Joe Biden’s economic agenda suffered a setback with Senator Joe Manchin rejecting the $2 trillion spending package.
In Economic News…
- Australian RBA decision. RBA left the cash rate at 0.1% and remained upbeat on the economy’s prospects, saying omicron wasn’t expected to derail the recovery.
- Global growth outlook. IMF warned threats to global growth had increased amid delta variant, strained supply chains, accelerating inflation and rising costs for food and fuel, resulting in the fund downgrading 2021 global GDP growth forecast by – 10bps to +5.9% (forecast for 2022 at +4.9% remained unchanged), U.S. 2021 forecast by -100bps to +6% (boosted 2022 estimate by +30bps to +5.2%) and China’s 2021 and 2022 estimate by -10bps to +8% and+5.6%, respectively, however, upgrading euro area 2021 projection by +40bps to +5% (2022 forecast unchanged at +4.3%).
- U.S. The Fed doubled the pace at which it’s scaling back purchases of Treasuries and MBS to $30bn a month, putting it on track to conclude the program in early 2022, rather than mid-year as initially planned, and signalled it favours raising interest rates in 2022 at a faster pace than expected and anticipates another three increases as appropriate in 2023 and two more in 2024, bringing the funds rate to 2.1% by the end of 2024.
- China. Factory activity continued to recover in December with both official manufacturing and non-manufacturing PMI’s rising as commodities prices fell significantly and cost pressures on companies eased to some extent.
- Australia. According to IMF Australian government debt increased by +221% since 2000 to 44.1% of GDP, the most of any major economy this century, with the nation facing at least another 10 years of budget deficits.
- Europe. ECB kept benchmark rate unchanged at 0%, however, pledged to briefly double asset purchases to cushion the end of its 1.85 trillion-euro emergency program in March 2022, as President Christine Lagarde unveiled forecasts showing a strong economic rebound along with an outlook for faster inflation (inflation seen above the 2% goal for most of 2022, averaging 3.2%, before declining to price growth below target in 2023 and 2024, at 1.8% in each year).
- U.K. BOE became the first G-7 central bank to raise interest rates in the aftermath of the pandemic, lifting borrowing costs by +15bps to 0.25%.
- India. RBI kept borrowing costs at a record-low of 4% to ward off risks to economic recovery from the omicron variant, while sponging away excess liquidity to keep inflationary pressures at bay, retaining the inflation forecast of 5.3% and GDP growth forecast of +9.5% for 2021.
Stock specific news (which caused significant intraday moves during the month)
- Afterpay Ltd (APT) – declined -7.6%, after U.S. regulators ordered it to disclose its consumer protections.
- Link Administration Holdings Ltd (LNK) – surged +15.0%, after agreeing to $2.9bn buyout offer by Canadian group Dye & Durham.
- Magellan Financial Group Ltd (MFG) – slumped -32.9%, after losing a key mandate.
- Mesoblast Ltd (MSB) – slumped -17.4%, after Novartis terminated its agreement.
This Monthly Market Wrap snippet was provided courtesy of BanyanTree Investment Group.
Fund Manager at BanyanTree Investment Group
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