Daily Market Commentary 12th May 2022

US inflation continued to surge, rising above the expected 8.1%, to 8.3%. This was below the top of 8.5% from March, but questions whether the peak has been reached. US 10 year bond yields remained below 3% for the second day and will remain the focus of market attention. German inflation hit a 41 year high, rising  to 7.4%, as energy prices continue to spiral out of control. The Ukraine announced the shut-down of Russian gas supplies to Europe, transported across their territory overnight, which will exasperate the crises even further. The EUR traded just above 1.0500, while the GBP continued to flail, plunging to 1.2270.

The inflation crises continues and has reared up in China, with the CPI rising to 2.1%, while PPI pushed up to 8%. Inflation has remained tame in China, but the economic situation remains extremely troubled with massive COVID lock-downs preventing the normal functioning of economic production, exports and imports. Commodity demand has been softer and the associated currencies have been impacted, with the AUD falling below 0.6950, while the NZD has collapsed below 0.6300. Testing times are ahead and inflationary pressures will drive the likelihood of recession.