As we embarked on a mixed note in 2022, several challenges and opportunities are to be expected. Looking ahead , here are the three main market drivers that we at Golden Brokers Limited gather for you to watch this year.

1.      Inflation

Rising inflation were prevailing drivers of markets in the 2020 and 2021 and expected to continue to drive the stock market performance in 2022. The rising inflation is expected to be one of the big economic issues in the first half of 2022. In the U.S., due to the Fed's easy monetary policy, supply chain disruptions and elevated commodity prices, inflation is running hotter than the U.S. has seen in decades.

Global markets have continued to see a wave of volatility as investors continue to assess the outlook for factors such as central bank policy normalization, with expectations that fast-rising wages in the U.S. could lead the Federal Reserve to raise interest rates even higher this year.

Investors will watch consumer price data on Thursday for clues on the Federal Reserve's plans to hike interest rates. An unexpectedly strong jobs report last week raised concerns of a more aggressive move by the central bank. The U.S. consumer price figures will show whether January marked the fourth month in a row in which the annual inflation rate topped 6.0%. The CPI released last month showed that prices surged 7.0% for the 12-month period that ended in December—the highest level since 1982.


2.      Central Banks Policy Outlook

In the wake of higher inflation, interest rates will need to go up. Thus, the question is asked; is the era of pandemic-crisis monetary policy is coming to an end. We’ve already witnessed hikes in New Zealand, Poland, Norway, South Korea, the Czech Republic and most recently in the UK as central banks begin to unwind emergency measures put in place during the pandemic.

Expectations for the U.S. Fed to raise the fed funds rate by 50 basis points in March increased noticeably after the January employment report displayed surprisingly strong jobs growth and higher-than-expected wage gains. On a related note, the ECB and the BoE also acknowledged the inflation risks in the economy. The BoE responded accordingly with a 25-basis-point rate hike for the second meeting in a row, and the ECB said it couldn't rule out a rate hike this year after previously indicating that was an unlikely possibility.

In the latest policy update on Wednesday last week, the U.S. Federal Reserve struck a somewhat hawkish tone, flagging a rate increase in March, as has been widely expected, and reaffirmed plans to end its bond purchases that month before launching a significant reduction in its asset holdings. The Fed also warned that inflation remains above its long-run goal and supply problems are bigger and more long-lasting than previously thought.

Elsewhere, the People’s Bank of China delivered a major cash injection into the banking system in a bid to prop up the property sector, after one of the country’s biggest - and heavily indebted developers - Evergrande found itself in hot water. Yet the big picture was of a world growing strongly as it increasingly found ways to deal with COVID-19. Growth came back, but with that came some other issues.


3.      New COVID-19 Variants

Arguably the most glaring concern for Wall Street continues to be the coronavirus and its numerous variants. The unpredictability of the spread and virulence of new COVID-19 strains means a return to normal is still potentially a way off. With every country seemingly having its own approach to tackling the pandemic, supply chain issues and workflow disruptions could remain commonplace throughout the year.

Beyond doubt is that the virus is still a key source for concern for investors and retains the ability to significantly influence and disrupt demand and supply, and hence market behaviour.


4.      Corporate Earnings

Beyond COVID-19, it was an eventful year of many highs and lows. Investors witnessed the rise of the ‘meme stock last year’, most notably in the case of the U.S. video game retailer GameStop, which saw its value soar by some 1,700% in the space of a month.

Global equity markets have roughly doubled from their 2020 lows. While many casual observers readily assign that outcome to easy money and excessive exuberance, stellar earnings growth has been a major driver of market performance. With corporate profits are the strongest in decades, consumers are backed by excess savings, and gradual supply chain normalization should provide a boost to inventories and production. Of the 278 companies in the S&P 500 that have posted earnings as of last Friday, 78.4% reported above analysts' expectations, according to Refinitiv data.


5.      Eastern Europe Tensions

Growing tensions of Russian and Ukraine added to a risk-averse environment for investors. The massive build-up of Russian troops and military hardware around the country’s border with Ukraine has drawn outrage from NATO and the West, though Moscow has repeatedly denied any intent to invade its neighbour. Any escalation could spill into the European economy in the form of lower trade with the region, tighter financial conditions, and lower gas supply.