Equity markets turned negative overnight, as market attention turned their collective focus on to inflation and the impact on Central Bank liquidity. Inflation is the driver of Central Bank policy and the surge in global inflation is forcing Central Banks to tighten monetary policy, raising rates and cutting the size of the balance sheet. In Europe, the inflation crises is being forced by the energy crises adding massively to PPI, which translates directly into cost-of-living inflation. The Norwegian PPI hit 79.4, which is off-the-charts record highs, due directly to rampant energy costs, while Czech inflation hit 12.7%. Europe has been experiencing the pain of the energy crises and cost-of-living inflation for months, but it is starting to materialise in the data. The ECB meets later in he week and must recognise these pressures, but have so far been reluctant to act?
The Ukraine war has only increased the pressure on supply chains and commodity prices. The Chinese lock-downs have tempered commodity demand, with oil prices dipping below US$100/barrel, which has taken the upward momentum from the associated currencies. The AUD is crashing back towards 0.7400, while the NZD looks to test 0.6800, on the downside. The UK overnight released the annual GDP number, which came in at 9.5%, reflecting the surge post-COVID restrictions. The last month of GDP growth was a mere 0.1%, reflecting the direction of growth in the UK, signalling that the economy is heading into recession and perhaps stagflation? The GBP fell back to 1.3010, despite rising interest rates, while the EUR has slipped to 1.0870.
All eyes are now on US CPI and PPI, due out tonight and tomorrow night , respectively.