LiveWire

Investors have poured capital into investments tied to the inflation theme this year. It's not a surprise to anyone that investors are positioning to hedge against the threat of inflation. Investors have allocated an impressive 20% of the $180 billions of inflows into ETFs in 2021 towards inflation-protected funds, according to iShares. Additionally, flows towards real assets such as real-estate, infrastructure, or commodities have also been very strong. Inflation will most likely remain a key topic on top of investors' agenda entering next year. A more pronounced level of inflation or a less persistent one could see investors rapidly rebalance portfolios. Nonetheless, there could be other reasons investors added to alternatives such as for diversification purposes amid surging stock prices.  

Risky assets have continued to rebound amid easing Omicron fears. News flow is encouraging. South Africans contracting the omicron variant in the current wave are 80% less likely to be hospitalized compared with other strains, according to a new study. United States regulators authorising Pfizer’s antiviral COVID-19 pill, Paxlovid, for high-risk people is also brightening the outlook. Number of daily cases continued to ramp up globally, but declining in South Africa.

USD/TRY rises to record high of 15.5970 after rate decision, from 15.1174 beforehand. Turkish banking watchdog says ordered banks to tighten control of lira loans use.

The majority of FOMC members are focused on price stability, even with the omicron variant posing downside risks to growth. The Fed still expects inflation to be transitory. It is now expected that US interest rates will gradually start moving higher with at least 3 hikes in 2022, dependent on economic conditions. 

US Fed eyes 3 rate Increases in 2022, slows stimulus in reaction to inflation. The taper pace is doubled from $15bn to $30bn/month, as expected. The market went from expecting 1 hike previously to 3 hikes now (the market assumed it would be 2 hikes, but is relieved it's not 4). The interest rate hike trajectory remains contingent on the economy. The aggregate 2022-2024 dot plot only went up by 1 hike. The Fed still expects the surge in inflation to come down, as greatly affected by the pandemic. Markets reacted overall well with major US indices gaining 0.8%-2% with those stocks particularly hurt in previous sessions rebounding. While the US tapering environment is not particularly positive for markets, they are rallying on the relief of not receiving the worst news. Investors positioning going into the meeting has been much more defensive lately and market sentiment is starting to strike a more positive tone. Perhaps investors will shift their eyes onto earnings again, which is what usually drives markets.