Daily Market Commentary 11th March 2022

The ECB surprised markets with a hawkish monetary policy statement. The ECB has brought forward the reduction and end of QE and will now look to end QE, in the second half of the year. They will then begin to raise interest rates, in an attempt to rein in rampant inflation. Of course it is too late. As that particular Genie is out of the bottle. The point is they continue to add petrol to the fire. with further QE, until then. Inflation is at historically record highs and going much, much higher. The Ukraine war and the sanctions these EU leaders imposed, will cause massive disruption and only result in surging commodity prices, exasperating the energy crises and creating a new food crises. The genius group of EU leaders are now proposing EUR$1 Trillion plus in new bonds, for military and energy, which will only add further to the fiscal and monetary crises. The EUR initially rallied to 1.1100, on the hawkish ECB news, but tumbled back below 1.1000 after markets considered where the EU economy is, while the GBP traded 1.3110.

The US CPI number was worse than expected, coming in at 7.9%, a new 40 year high, and looks set to go much higher. The sanctions are causing skyrocketing commodity prices and further supply challenges, which will end up hurting the Western nations imposing them, more than Russia. The Fed would love to defer the new telegraphed interest rate policy of raising interest rates, but the inflation is forcing their hand. They are caught between a rock and a hard place. The announcement of an expanded deficit shows lawmakers have no idea of fiscal control, so monetary policy will be forced to remain loose. Western economies are in big, big trouble. The resurgent commodity prices reignited the associated currencies, with the AUD approaching 0.7350, while the NZD broke above 0.6850.

The rebound was a dead cat bounce by the looks of things.