Reddit versus Wall Street
One of the most gripping episodes of market action in 2021 was, of course, the dramatic scenes that unfolded in several unassuming US stocks. As hundreds, if not thousands, of retail traders joined forces, via communications on the popular Reddit thread “WallStreetBets”, several stocks saw dramatic gains in a very short period of time. One was US GameStop stock which surged around 800% following the combined buy.
The driving force behind the move was to punish hedge funds that held short positions in the stock, driving the company out of business. One hedge fund in particular, Melvin Capital, was forced to liquidate its position following the move. Several brokers were also forced out of business due to outstanding volumes as media coverage drove increased traffic to the site and funneled more stock into the markets.
Similar scenes have been seen in stocks such as Nokia and Blackberry and there has even been an attempt to drive up the price of silver. While the moves eventually died down, resulting in a decline as drastic as the rallies, for a brief period the world of financial trading was turned upside down as the little guys took over and stuck it to the man!
Crypto becomes Cray-Cray
The action seen in some of these stocks at the height of the WSB episode was very similar to what we were seeing elsewhere in another section of the market. Crypto traders have had an astonishing start to 2021. The market has exploded, with major cryptocurrencies recording extraordinary gains. The Bitcoin crypto icon has skyrocketed by more than 120% in the first five months of the year.
However, it is in some of the newer and lesser known cryptocurrencies that we have seen the real fireworks. Some of these “alt-coins” have seen gains of over 1000% over the same period, as media attention on the cryptocurrency has led to a record increase in demand.
Social media has played a huge role in the crypto revolution seen in the first half of 2021. Forums, chat networks, and even game streaming platforms have helped spread the crypto craze as more and more more people entered the market. As the rally died down over the summer, for Bitcoin at least, we saw another big rally with prices eventually reaching new highs before collapsing again. Given the volatility in price action, the asset class has become one of the most exciting to watch heading into 2022, which traders are hotly debating, where to go next?
After a very turbulent year of trading in 2020, at the height of the pandemic, commodity prices have come back strong in 2021. Fueled by growing optimism about vaccination rates and reopenings taking place around the world, raw materials have reached new heights. Copper, iron ore, steel… You name it, they bought it!
Aluminum had its best year in more than a decade, while agricultural markets also saw huge gains, including corn and sugar, which were both up more than 20%. The return of global trade in the aftermath of the worst days of the pandemic has proven to be a goldmine for commodity traders (get it?)
Oil and gas go away
Digging a little deeper into the commodity rally (no more puns, I promise), oil and gas have had a bumper year. Natural gas was nearly 200% higher at its peak in 2021. A combination of rising demand, production issues and falling inventories meant natural gas was a hot property in 2021 (ok j lied about puns).
Oil prices also had a solid year of buying. The recovery of the global economy following the reopenings, the return of global trade and the slow but steady recovery of global travel led to a firm return in oil demand during the year, with an increase of approximately 80%.
Energy prices remained a key theme throughout 2021 and after the summer, supply chain issues gripping the world saw prices rise even further. A mix of COVID-related disruptions, political clashes, and regulatory issues have caused global supply chains to collapse. Several energy suppliers have gone bankrupt, leading to even higher energy prices as supply problems have worsened. It all culminated in comedic scenes across the UK as petrol stations began to dry up, leading to plenty of forecourt drama, endless queues and breakdowns galore.
Inflation (return of the evil empire)
One of the key themes of the year was the return of inflation. After the blow to global price pressures in 2020, 2021 was the year prices rebounded. Thinking back to some of the previous points we covered, you might already have a good idea why.
Soaring commodity and energy prices, supply chain issues, labor shortages and pent-up demand have all combined to create an inflationary storm. In the US, UK and Eurozone, inflation soared over the summer and into the third quarter, creating a headache for consumers and central banks. The CPI hit its highest level in nearly a decade in the UK, while in the US prices were at their highest level since the 1980s.
The Turkish lira loses ground
Earlier we were talking about the dramatic gains seen in certain sections of the market. However, as we know, where there are winners, there are also losers. The Turkish lira has seen a steep drop in 2021, with the currency falling almost 200% against the dollar. Turkey has been caught in an inflationary spiral in recent years that has fueled steep currency devaluations.
While the CBRT slowly corrected the problem with a series of rate hikes, the bank’s methods were not supported by President Erdogan. At the end of 2020, Erdogan ousted the head of the CBRT and replaced him with a banker of his choice. Since then, the CBRT (against global advice) has started cutting rates again, causing the pound to fall further and inflation spiraling further out of control.
Back to central banks
The third and fourth quarters saw the markets deal with an issue we haven’t had to deal with in a while, central bank tightening! With inflation soaring and economic indicators confirming a solid bullish trajectory in the third quarter, market attention shifted to anticipation of impending central bank tightening, particularly from the G10. The BOC was the first to pull the trigger in October.
However, despite rising expectations, it was not a simple story. Many central banks moved closer before eventually pulling back (BOE, we’re looking at you) and the market grew increasingly frustrated trying to gauge when the tightening would begin. The Fed and BOE eventually joined the party while others like the RBA and ECB were forced to sit on the sidelines.
Over the last quarter of the year, it became clear that we are now firmly back in a tightening cycle with the BOE raising rates and the Fed accelerating the pace of its cut. The focus now is on when we will see further tightening.
Omicron against the world
Of course, we couldn’t conclude a recap of 2021 without a quick word from our sponsor – Omicron. The early days of 2021 struck fear into the hearts of traders (and citizens) as news of a new COVID variant hit the wires. First discovered in South Africa, the variant which proved to be much more contagious than previous trains, was all over the world. As a result, markets started crashing as countries announced travel restrictions and many feared we would return to a global lockdown.
However, scientists quickly established that the strain, although more infectious, is not as virulent as previous strains. With that in mind, most countries have so far avoided the most stringent measures and, with data supporting the idea that the strain is not as potent, the outlook remains favorable in early 2022. Some scientists hope even that this strain will prove to be the end of the pandemic given its milder symptoms.
So now that we’ve taken this little walk down memory lane you’re probably wondering what to expect in 2022… Well wonder no more because we’re going to be having a LIVE panel with some of Tickmill’s brightest minds . Our experts will discuss the developing pandemic, the 3rd presidential cycle year, global central bank policies, commodities, crypto and much more.
Join us on January 19and, 2022, 6:30 p.m. UK time; to hear what our experts think the future may hold! Find out more and book your place by clicking here.
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