Goldman Sachs: Inflation data will be the main market driver in 2022

Even though the US central bank holds on to its view that rising inflation is only temporary, Goldman Sachs predicts that inflation data will be increasingly taken into account by the market.

Goldman Sachs predicts that inflation will be the main driver of the market until 2022.

From observations on oil markets, currencies, to interest rate swaps, inflation data will have the biggest impact.

As a precautionary measure for trading next year, Goldmans Sachs recommends buying currencies from countries where the central bank is taking a more hawkish approach in responding to inflation.

Meanwhile, in the midst of rising world commodity and oil prices, Goldman Sachs will buy on the Australian Dollar and Canadian Dollar.

"Given the volatility of inflation in recent times, rising headlines, and an upward trend; we believe the market will start to demand a positive inflation risk premium. We expect this to last well into next year," wrote Goldman Sachs analysts. in his notes.

Goldman Sachs' main idea of long-term trading is now based on expectations of inflation data.

In the bond market, the bank recommends buying five-year US Treasuries.

On the equity market, they recommend Mexican and Russian stocks, due to their defensive nature against potential US Rate Hikes and China's economic developments.

Market Will Pay More Attention To Inflation Data

The latest inflation data released further contradicts the "temporary" view echoed by the Fed.

US consumer inflation rose 6.2% in October on an annual basis.

On a monthly basis, the gain was 0.9%, higher than the 0.6% expected and 0.4% previously.

Meanwhile, the US Core CPI, which excludes prices for volatile goods such as food and energy, also rose from 0.2% to 0.6% in October.

Until last week, the Fed was still reducing market concerns about the impact of high inflation.

Both Chairman Jerome Powell and his deputy, Richard Clarida, said the rise in inflation was only temporary.

Speculation that a rate increase is needed to avoid risk was dismissed by the US central bank.

"As long as the Fed is reluctant to signal a more aggressive stance, then we expect many to include higher inflation risk compensation," Goldman Sachs said.