While we in the UAE had our long EID break last week, the Global markets were on a roller coaster...
The Triple Whammy - Weekly Market Update 19/12/2021
This is the weekly market update as of 19th December 2021. Please visit every week for news, views, and market moves.
In this post, we will discuss the triple whammy that brought the markets down last week. We will learn a new phrase, "Quadruple Witching," and discuss the following year's outlook.
Let's begin by wishing all those celebrating Christmas later this week, A Merry Christmas and a Happy New Year!
Weekly Market Update
Despite the relaxed mood of the holiday season, there was sustained selling pressure in the global markets last week due to the Triple Whammy of;
- The Quadruple Witching
- The Omicron Threat
- and The Fed U-Turn
What is Quadruple Witching?
Quadruple witching is a spooky big word referring to the simultaneous expiry of four types of financial contracts: Stock index futures, Stock index options, Stock options, and single stock futures.
It happens every quarter, on the third Friday of March, June, September, and December. On this day, typically, the trading volumes are very high as traders square off their positions.
While this term usually means a lot to traders, it is of little significance to investors. However, last week, the quadruple witching coincided with Fed's 180º shift and the Omicron threat, further exacerbating market volatility.
The Fed made a complete U-turn in the last two weeks to classify US inflation as not transitionary. After Wednesday's meeting, Cheif Jerome Powell announced that the Fed would push the pedal on tapering, ending the bond purchases by March next year. He also indicated three potential interest rate hikes in 2022 in an attempt to curb inflation.
The third reason for the sell-off last week was the Omicron variant threat, spreading swiftly while the Delta variant is still active.
The coincidence of these two variants could spike the number of cases globally in January, warranting further social restrictions and market volatility.
Traders and Institutional investors sold in response to the triple whammy to lock in the spectacular profits earned during the year.
Moving on to Europe
European equities were down last week amidst tightened social restrictions and fears of stringent monetary policies.
In an attempt to curb inflation, the Bank of England raised interest rates for the first time in more than three years.
On the other hand, the European Central Bank(ECB) left its monetary policy unchanged, at least for now. However, it indicated that the transition from the ultra-easy monetary policy is inevitable but gradual.
Moving further East into India and China
Chinese equities were down due to the resurgence of Covid 19 cases, export restrictions by the US, and delisting fears.
Shares in India were down on weak global cues and sustained FII selling throughout the last three months.
FIIs have sold equities of almost 95,000 crores rupees(12.5 billion Approx) in the previous three months.
After a steep rally last week, investors and institutions booked profits amidst the triple whammy discussed above. However, the experts outlook for the year-end and the following year is still positive.
Prudent asset allocation in value stocks, defensive sectors, bonds, gold, and cash can provide the necessary cushion to withstand potential volatilities.
This was a weekly market update as of 19th December 2021. I hope you found it valuable and engaging.
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