With stock markets across the world seeing two years of stellar returns, investors are now homing in on 2022 as a year where a number of potential catalysts stand to shape the course of action.

The unprecedented days of ultra-loose monetary policy may soon be behind us, and with the beginning of 2022 already showcasing high levels of volatility, these are four of the key themes to watch in the year ahead.


How will stubbornly high inflation impact corporate earnings?

Recent data from the US showed yet another multi-decade high for inflation, with the year-on-year rate for the consumer price index spiking to 7%, the highest since 1982. Even after excluding more volatile categories such as food and energy, the core inflation reading pointed to 5.5% growth, a 30-year high in itself.

The US is not alone either, with the Euro zone inflation hitting a new record high of 5% in December, while in the UK consumer price growth hit a decade high and is tipped to run at more than twice the Bank of England’s target rate of 2% for the next year.

It is apparent by now that high inflation has been anything but “transitory”, as the Federal Reserve once proclaimed. However, even with monetary policy expected to change in an effort to address inflation, the impact is certainly being felt on consumers and a number of businesses. 

The likes of Domino’s Pizza (ASX: DMP) and Inghams (ASX: ING) are just two companies that have sounded warning signs over recent months, but more insights are expected to be revealed later this month and next when big-name stocks report in the US and the ASX earnings season kicks off.


At what pace will interest rates begin to rise?

Central banks have pivoted sharply when it comes to the outlook for interest rates, and again, the Federal Reserve has played centre stage here. The world’s most-watched central bank has forecast rates may rise three times in 2022, with quantitative easing unwinding at a faster-than-expected pace. Meanwhile, some observers predict four rate hikes this year, with the first as early as March.

This uncertainty has already sparked some volatility and recalibration across global equity markets, with Treasury yields rising and growth stocks such as Microsoft (NASDAQ: MSFT) and Afterpay (ASX: APT) seeing a pull-back, and many other non-profitable tech stocks coming off the boil. Some smaller tech names are off as much as 80% from their pandemic highs.

Growth names tend to be more susceptible to rising rates given the uncertainty of their future earnings, which is due to the fact the risk-free rate of return rises and impacts the discount rates used for valuations.

At the same time, value and cyclical stocks, including banks like Commonwealth Bank (ASX: CBA) and JPMorgan (NYSE: JPM) tend to see a net benefit as higher rates improve margins. But there is also some concern on this front, as rising rates could impact home loan borrowers and the property market, flowing through to equities.

Ultimately, the pace at which the Fed adjusts rates will be critical for global markets. Locally, the Reserve Bank of Australia will also be on watch as it has only recently begun to shift its rhetoric from a 2024 rate hike target to late 2023, despite a growing number of economists believing it could be forced to lift rates this year.



How will the evolving pandemic impact the global supply chain?

The emergence of the Omicron variant has shifted the approach to pandemic management across much of the world, with many countries now committed to avoiding lockdowns in an effort to keep economies open. 

However, in the wake of the highly-transmissible variant, industries are facing a number of challenges and constraints across the global supply chain. The fast-spreading variant has likely amplified inflation, with worker shortages being recorded across numerous industries, and particularly felt across those tied to logistics and delivery networks. 

The uncertain trajectory tied to the pandemic has also stifled consumer demand across various sectors, with consumer discretionary caught in the crossfires, and the travel industry being another segment facing headwinds as travellers defer their plans or stick to local trips. Since Omicron emerged, stocks such as Webjet (ASX: WEB), Flight Centre (ASX: FLT), American Airlines (NASDAQ: AAL) and Airbnb (NASDAQ: ABNB) have all fallen from what had been recent highs.


Is a commodities supercycle on the cards?

Iron ore prices raced out of the gates in 2021, spurring rallies in Fortescue Metals (ASX: FMG), Mineral Resources (ASX: MIN), BHP (ASX: BHP) and Rio Tinto (ASX: RIO), before gains were pared from about half way during the year as China began to curb steel production. 

However, hopes of recovering production out of China have lifted iron ore prices over recent weeks. Despite this recent optimism, the Chinese economy still faces numerous headwinds, including ongoing regulatory tightening across various sectors, the uncertainty tied to Evergrande, and forecasts pointing to lower growth on the back of restrictions to contain the pandemic. Now more than ever, the outlook for the key steel-making ingredient remains subject to the policy actions of the Chinese government.

Elsewhere, energy prices have entered the new year in the midst of a bull market, with crude sitting near a multi-year high, even in the face of a production hike from OPEC+. Expectations for production to return out of Iran later this year have also begun to subside, with some tipping the market could get very tight over the first-half of the year. LNG and coal prices are also at elevated levels, while agricultural commodities markets have also started the new year with ‘record dislocations’.

However, one of the biggest trends of the last two years has focused on battery minerals such as lithium and rare earths materials. Demand for these commodities has soared amid expected shortfalls as the world increasingly embraces electric vehicles – something that has been driven by Tesla (NASDAQ: TSLA), and also sparked competition from Nio (NYSE: NIO) and Lucid Group (NASDAQ: LCID), plus listings from the likes of Rivian (NASDAQ: RIVN).

At the heart of that shift has been ASX-listed battery metals producers and tech firms like Novonix (ASX: NVX), Pilbara Minerals (ASX: PLS), Allkem (ASX: AKE), Lynas Rare Earths (ASX: LYC), and Vulcan Energy (ASX: VUL), among others. 


Whether it’s inflation, interest rates, the pandemic, the global supply chain, or commodity prices, investors have a number of factors to watch throughout 2022.


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