The Day at a Glance | January 19 2022

The Top

*Markets take into account more aggressive interest rate increases: 50 bp by the FED in March; 10bp by the ECB in September.

*Inflation in the United Kingdom surprisingly increased to its highest level in 30 years (1992) during December (5.4% annual).

*The IAE increased its estimates regarding demand for crude oil in 2022 by 200,000 thousand daily barrels, which implies a recovery to pre-pandemic levels (99.7 million daily barrels).

Economic environment

Markets and analysts move forward with expectations of monetary normalization. In the first weeks of 2022, markets have started to take into account a more aggressive monetary normalization process among advanced economies. Next week, the Federal Reserve will hold a meeting in which it`s expected to give clear signs of increasing rates in March, and guidance about its plans to reduce the balance of assets. Even though a 25 bp increase is the most likely scenario, Swap markets have started to speculate about the possibility of a 50 bp increase as the tight labor market and wage increases have raised concerns regarding inflation and have created the perception that the FED will have to act more aggressively. Some have even talked about the possibility of seeing 5 25 base point increases throughout 2022 (which would take the interest rate from 0.25% to 1.5%), after the analysts` consensus recently pointed out that there would be 4. Risks are still skewed towards there being more interest rate adjustments; even though most economists agree that more increases in 2022 would imply less of them in 2023. The adjusted expectations have started having an impact on markets this week with setbacks in stock markets and increases in market interest rates. In Europe, a similar phenomenon has started being seen as money markets have taken into account a 10bp increase in the deposit rate (currently at -0.5%) as soon as September. Markets consider that the ECB will eventually abandon its transitory-inflation rhetoric and could adopt a fast monetary normalization stance (like the FED) starting in its monetary policy meeting in March.