12 / 21


Financial markets recovered significantly from the fears of the new COVID-19 variant Omicron in December, although the U.S. Federal Reserve is already pushing for a faster reduction of bond purchases and clearly communicated this at its last meeting of the year. Markets are already expecting up to three interest rate steps next year, which on the other hand also leaves room for "dovish" surprises if inflation and growth expectations do not develop as expected by central banks. The beleaguered supply chains, despite all fears, have survived the Christmas rush, even in the BREXIT-hit UK. In addition, freight rates as well as commodity prices have weakened significantly again since the highs. The latter factors should give central banks more time to normalize policy, but possibly not at the pace recently communicated - a significant part of the inflation momentum is likely to be temporary. Nevertheless, the absolute withdrawal of the stimulus measures (fiscal and monetary), some of which have been unprecedented over the past two years, will keep us busy in the new year 2022 and create additional volatility in the markets. This is despite the fact that financial conditions are likely to remain loose overall. It will be the marginal rate of change which will attract attention. Otherwise, the Russian troop buildup on the border with Ukraine was the main topic of discussion. In this regard, a meeting between the U.S. and Russia has been scheduled for 10th January to de-escalate the situation.

Equity Markets

December was characterized by strong gains across the board. After the mood of investors in November indicated panic, this again turned significantly and brought price gains between 4-6% on the main indices. Once again, the Chinese and Hong Kong markets brought up the rear, losing -0.33%. Also on a yearly basis, it is the emerging markets that take the lonely role of loser markets in an otherwise extraordinarily synchronous global equity year (see FOCUS). Even if on the surface there is an appearance of carelessness after a very strong year for equities in the U.S., the first unsightly cracks in the market structure remain - despite the new all-time high in the S&P500, only just under 52% of all equities traded on the New York Stock Exchange are trading above the 200-day average. As already mentioned in the last market commentary, some very expensive segments of the US equity market are in a downtrend - which should be perceived as a warning signal for the overall market in the medium term.

Interest Rates

Yields on the capital markets were again practically unchanged in December. Even though interest rates have risen worldwide this year, it must also be soberly noted that yields on 10-year government bonds, for example, are well below their highs for the year. The capital market thus doubts that inflation will be sustained at a higher level. In addition, the interest rate market, with a recent sharp flattening of the yield curve, is sending the signal of a rather short economic upswing, which is being jeopardized by the central bank.

Currencies / Commodities

Commodities were the big winners in 2021 in general. The energy sector appreciated between 50-65% and the major industrial metals gained between 20-40% (see FOCUS). Contrary to consensus, the USD continued to rise (against CHF +3.1%). The losers of the year included the yen (-7.5%), the Swedish krona (-6.3%) and the euro (-4.1%).


After a very good year for equities worldwide, we are somewhat downgrading our expectations for further price gains in real assets. The economic environment with expected economic growth of between 3-4% remains constructive for equity investments. However, this contrasts with the aforementioned cuts in monetary and fiscal stimulus. Given the historically high valuations, this must continue to be done very cautiously. In view of our tactical overweight in equities, which we justify on the basis of poor investor sentiment, positive seasonality and the continued relative attractiveness (lack of alternatives), we will continuously scrutinize the current positioning. The aforementioned warning indicators on the interest rate front (further flattening or even inversion of the yield curve or sharp rise in inflation expectations), investor sentiment and the market structure are currently not yet extreme enough for us to adopt a more cautious positioning.


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