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As I write this year end note, I feel a sense of Déjà vu. Exactly a year ago, around this same time, we were showing signs of economic rebound and victory over Covid. Unfortunately, we were hit by the second wave that not only impacted human lives extensively but also extended the uncertainty and volatility in market across asset classes.

Analyzing high frequency indicators,trade deficits, price pressures (both input and output prices), and buoyancy across sectorsin festive season, we feel that the economic cycle is almost back to pre Covid levels. But at the same time there is noise about a new variant “Omicron” and we are again witnessing bouts of uncertainty and volatility.

With uncertainty still glooming, decision making for central banks and investment options for investors continue to remain challenging.

Quick recap

Major themes which played out last year were:

1) Central banks in H1 across failed to spur growth on account of Covid uncertainty and are still grappling with economic uncertainty despite flooding the markets with liquidity and easy monetary policies

2) Government deficits continued to widen to support growth & economy

3) Inflation fears started rising especially in H2 on account of supply bottlenecks and lack of investments

4) Credit cycle showed massive improvement especially for good operating companies where we observed credit spreads compression

5) Risk On and High Risk asset classes delivered good returns, wealth impact among wealthy investors increased leading to higher propensity to consume

6) Central banks starting to face issues of communication to reverse the rate cycle in rising inflationary environment as markets use to the Central bank steroids.

Summary of quick macro data trends and changes over the last 12 months

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