Global equity markets regained some momentum in mid-December and marched higher towards year-end as investors looked beyond the near-term risks to economic activity stemming from the Omicron variant. The MSCI All Country World ended the month nearly 4% higher and hovered just below its record high. All major benchmarks ended the month in positive terrain, with developed markets extending their run of outperformance versus their emerging market peers.
North American bond markets produced some mixed results. In the US, treasury yields edged higher following the hawkish-pivot at the Federal Reserve, where policymakers accelerated the pace of their quantitative easing taper and projected a steeper forecast for the fed funds rate, which led to a material rise in short-term yields. However, there has been little effect on the long-end of the curve as long-term inflation expectations have remained fairly stable. Meanwhile, Canadian government bond yields trended lower after the Bank of Canada stayed the course and refrained from altering its statement language that would have more clearly signaled a rate hike in the first quarter of 2022. As traders went into the meeting pricing a January rate hike as a near certainty, investors tempered those expectations following the status quo outcome. Consequently, the US bond market posted negative results in December (-0.3%), while the Canadian bond market generated a monthly gain (+1.7%).
The US dollar retreated in December as risk appetite resurfaced and dampened demand for the safe haven currency. Still, the dollar gauge posted its best annual return since 2015. The Canadian dollar advanced alongside the monthly rally in crude prices and ended 2021 as the only G-10 currency to strengthen versus the US dollar. The pound rallied after the Bank of England defied expectations and raised interest rates in December, while the Japanese yen weakened on bets the Bank of Japan will trail other global central banks in normalizing monetary policy.
After tumbling into a bear market in November, crude oil staged a remarkable turnaround in December as fears over the new strain of the coronavirus receded, while energy consumption has thus far escaped a major blow from the new variant. Gold also rose as investors sought out a hedge to unrelenting pricing pressures, while the weaker greenback also boosted prices. Finally, copper found some support as investors assessed the potential for stimulus from China after top officials pledged to counteract growth pressures and prioritized stabilizing the economy in 2022.
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