Market Wrap: Inflation concerns overshadow strong start to fourth-quarter earnings


US equity markets fell on inflation concerns ahead of next week’s highly anticipated Federal Reserve meeting, overshadowing a reasonably strong start to the Q4 2021 earnings season.

Following the weaker lead from Wall Street, the ASX200 fell to 7300, providing another test of the market’s resolve to keep the local bourse rotating around the 7400 region it has spent the past three months.

Here are the top five things that happened in markets this week.

1. US Q4 2021 earnings results

Despite some notable earnings misses from usually dependable names, including Goldman Sachs, JP Morgan, and Citigroup, according to FactSet, of the S&P 500 companies that have reported to date, nearly 70 per cent have topped Wall Street’s expectations.

2. Australian jobs data for December

Following an impressive gain of 366k jobs in November, the Australian economy added another +64.8k jobs in December.

The seasonally adjusted unemployment rate fell to 4.2 per cent from 4.6 per cent, its lowest level since pre the Global Financial Crisis in August 2008.

3. UK inflation data

The inflation rate in the UK increased to 5.4 per cent in December, above market forecasts of 5.2 per cent.

It is the highest reading since March 1992, and the inflationary peak is yet to be reached, as utility prices will be hiked in April.

The Bank of England with likely deliver a 25bp interest rate hike at its meeting in the first week of February and commence Quantitative Tightening (QT) in March.

4. Bulls take the upper hand in ‘The Battle for Bullion’

Gold shrugged off rising yields to surge above $1840 on fears that rising inflation will debase fiat currency, restoring gold’s status as an inflation hedge.

Should gold now see a sustained break and close above downtrend resistance at $1850, from the 2020, $2075 high, it would indicate the rally in gold can continue towards the $1950 area.

5. Iron ore recovery set to continue

Chinese-affiliated state media noted that China has opened its monetary policy toolbox and won’t allow growth to drop below 5 per cent.

When Chinese authorities set targets, they rarely miss them.

Continued monetary policy easing from Chinese authorities will provide the foundation for the next leg higher in iron ore towards $160 p/t – 20 per cent higher than its current price.

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All trading carries risk. The figures stated are as of January  20, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
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