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Collinson FX: April 22 - Markets react to inflationary consequences

by Collinson FX 22 Apr 2022 17:04 NZST 22 April 2022
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Equity markets turned sour overnight, following strong recent gains, as markets look to consider the inflationary consequences across Europe and the US.

The Fed look likely to raise rates by 50 basis points, in their attack on their own rampant inflation, while the ECB remains inactive. EU CPI inflation came in a 7.4%, which is a huge spike and is reflected across most EU member states. The ECB has chosen to defer action to combat spiralling inflation, to their own detriment and the pain of cost-of-living for their citizens. US 10 year bond yields resumed their upward surge overnight , popping up to 2.95%, which should ring major alarm bells. The EUR held 1.0840, despite the surging inflation data, while the GBP hit 1.3030.

Commodity currencies suffered a setback following the resurgent reserve. The AUD crashed back to 0.7370, while the NZD lost major ground and now looks se to test 0.6700. NZ Inflation was the dominant factor in domestic trade, surging to 6.9%, up a full percentage from the previous 5.9%. This comes despite the RBNZ looking to get ahead of this inflation freight train, well before other major Central Banks. The warning signs have been there for some time, but have not been heeded. The attempt to brush the rampant inflation off on a foreign war is insane. This has the usual origins and culprits, in the form of fiscal and monetary largesse by Government and the Central Bank, with debt monitisation.

Market realisation of the devastating impact of inflation and surging interest rates, is coming, as is a deep recession across the world.

Collinson FX: April 21 - Volatile trading

Global equities bounced higher, while the mighty US Dollar plunged lower, in volatile overnight trading on markets. The US Dollar has been driven higher by the inflation fears and the surging US Bond Yields. US 10 year Bond yields blew through 2.9%, but hit the wall overnight and suffered a sharp retreat, falling back to 2.82%. This allowed the GBP to regain 1.3050, while the EUR rebounded to 1.0840, following stronger than expected Industrial Production numbers.

The looming economic recession in the EU, has been brought about by spiralling inflationary pressures, triggered by an energy and building food crises. These inflationary pressures will directly translate into weaker disposable incomes and demand. German PPI was a shocking 30.9% annualised rate, which will directly translate into inflation and CPI. Equity markets shook these prospects off overnight and booked gains, following a strong rebound rally, supported by stronger than expected corporate earnings.

Commodity currencies were beneficiaries of a faltering reserve, with he NZD looking to regain 0.6800, while the AUD surged back through 0.7400. EU New Car Sales contracted 20.5%, while energy costs surge and input costs spiral upwards, so it is hard to remain confident about the positive near term economic future in Europe or the UK.

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