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Tradingview Weekly Market Wrap Monday 31 January 2022

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As expected, the United States and NATO said that they would not compromise the “open door” principle. In return, NATO suggested that Russia should establish a direct line of communication, and continue the dialogue on different platforms, including the NATO-Russia Council. The North Atlantic Alliance has also invited Russia to discuss issues of disarmament, missile deployment and arms control.

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Speaking of central banks, the Federal Reserve left the interest rate unchanged, confirming plans to start raising it soon to combat inflation. In addition, the country’s main financial regulator announced that it will continue to reduce bond purchases in the market and will complete them in early March.

So that by February 2022, the FOMC will buy at least $20 billion in Treasuries on the open market and $10 billion in mortgage-backed securities, for a total of $30 billion. In January, the regulator purchased $60 billion worth of assets. Through November 2021, the Fed, providing liquidity to the market, bought $120 billion worth of bonds each month. The committee expects the reduction in the size of the Fed’s balance sheet to begin after the process of increasing the target range for the federal funds rate is initiated.

Overall, the market expects a peak rate in late 2023 of 1.7%. But this may not be enough to slow the rise in rates and then the Fed will have to raise the rate much faster and above the long-term neutral level of 2.5%. During the press conference, Fed chief Jerome Powell confirmed the assumption that the committee plans to raise the prime rate in March. At the same time, the Fed again tightened its stance on inflation, admitting the risk that it will remain at current or higher levels for a long time. The Fed governor said that in the current environment monetary policy must be accommodative to achieve the regulator’s objectives.

From a macroeconomic data standpoint, in the fourth quarter of 2021, U.S. GDP grew at an annualized rate of 6.9%. The U.S. economy grew by 5.7% in 2021. This is the largest increase since 1984. In 2020, the economy contracted by 3.4%, the largest contraction in 74 years. According to preliminary data, annual U.S. inflation was 6.9%, the fastest rate of price increases since the second quarter of 1981. Inflation led to a 5.8% drop in real household incomes.

GDP growth in 2021 was helped primarily by higher personal consumption expenditures-both goods and services-as well as increased fixed asset investment, higher exports, and private investment. In the fourth quarter, the increase in exports played a key role. The fact that economic growth and inflation have somewhat exceeded expectations frees the Fed’s hands and allows it to quickly tighten monetary policy and raise rates starting in March.

Policy easing in China to support growth, including lower interest rates, and a resurgence in international travel and tourism appear to be providing a boost to emerging market assets. According to Bloomberg, even amid recent outperformance, earnings-based valuations of the MSCI Emerging Markets Index are 40% below those of the S&P 500 Index, near their highest level since 2007.

Finally, on the cryptocurrency industry side, the administration is rumored to be preparing to issue an executive order that would instruct federal agencies to regulate digital assets, such as bitcoin and other cryptocurrencies, at the level of national security issues. Presumably, Biden’s memo will instruct some government agencies to study cryptocurrencies, stackable tokens and non-tradable tokens (NFTs) in order to develop a workable regulatory framework.

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