Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow and Insights – Factors Shaping 2022

Friday 7th January, 2022

Daily Flows

  • We are seeing some unrated ADIs seeking funds again, presenting some opportunities for investors. However, rates are not currently quite as attractive as they were prior to Christmas while many banks are still waiting for the holiday dust to settle.
  • Market bond activity remains high amid a reduction in the CLF (Committed Liquidity Facility), seeing banks offload holdings in large volume. This is creating some pockets of relative value across the curve for those with capacity.
  • AMP continue to offer very attractive term deposit rates to non-FI clients, with particular value from 6 to 12 months (1% for 6 months).

Factors Shaping 2022

Inflation

  • The inflation outlook is the major concern for 2022.
  • How transitory is the current inflation environment? With supply chains still being stretched, costs are starting to be passed on to the consumer. How quickly we can recover from this will determine how 2022 will look
  • Of course, the major macroeconomic tool at central banks expense, in response to inflation, is interest rates. Therefore, an inflationary environment may see greater returns in fixed income markets.

Covid-19

  • Whilst the world as a whole seems to have the mindset, “Let’s get on with it”, new strains and further disruptions may continue to dictate the year ahead.
  • Further lockdowns seem highly unlikely, and economic recovery should continue to be swift.
  • Less government support may impact businesses and individuals. Unemployment is trending down and job numbers remain strong. Hopefully this can counteract a dwindling government support.

Global Growth & International Relations

  • Economic growth surrounding China is uncertain. If China’s growth is to slow down significantly, the ramifications on the Australian economy could be immense.
  • Furthermore, recent economic sanctions coupled with fragile international relations with China has the ability to seriously impact the future of the Australian Economy.
  • Of course, the U.S is a large factor – who continue to have run-in’s with several countries, and internally, are suffering from large political divide.

Nicholas Allan

Associate - Money Markets