Pace of change and pendulum swings in 2022

Revellers returning from holiday in Jan18 had reason to be mainly confident with a generally positive economic and global outlook. Inflation across the 1st world major markets of USA, UK, Canada, Australia and New Zealand was at that point settling into a mid-range having come off the relative highs of 2011.

US inflation was about 2.1%, UK at 2.6% with Australia at 1.9%. As the graph shows, these markets tend to have a synchronised cycles

Fast forward to Jan19, 20 and 21, and the experience for these revellers would have been in stark contrast. The global pandemic accelerated the K-shaped experience and for a handful, the ultra-low interest rates and lending enabled a bonanza in stock markets, crypto and housing. By way of example, in housing, loan commitments almost doubled in the six months from about Mar21 to Oct21.

Recent commentary has downplayed inflation expectations in Australian markets, but as the charts show, historically the cycles across these 1st world markets have been uncannily synchronised.

The pace of change may end up shocking many, seeing how fast the Fed pivoted in Jan22 and suddenly not only rate hikes but also balance sheet resizing is imminent. The other factor is the repayment by banks of the QE stimulus.

How fast will APAC countries be impacted and will the pendulum swing from the boom in ultra-cheap lending to severe tightening and demand for funding by banks. Do corporates have the tools to ensure that short-term funds are optimised, because in ’22 and ’23, every basis point will count.