US equity markets bounced overnight, after suffering a series of losses, heading into a challenging week. Inflation will dominate this week, with CPI/PPI releases all across Europe and the USA. Inflation is now dominating the market cycle as it determines the Central banks actions and monetary policy. Expectations are for an easing of inflationary pressures in the USA, as oil prices have been suppressed by a constant and daily release, from their US Strategic Oil Reserve (SOR). This is an attempt to keep oil prices lower, for political purposes, as the US Mid-Term elections loom large. It is only a temporary respite, as OPEC+ have countered, by cutting Oil production by 2 million barrels/day, and the SOR has become depleted to dangerously low levels.
European hopes of an easing in inflationary pressures look doomed, as the energy crises rages unabated. Hungarian CPI surged to above 20%, while the Czech Republic CPI surged to 18%, setting a trend for the larger European economies. The ECB must address this with substantial and aggressive interest rate rises and tightening of liquidity. The EUR bounced to 0.9750, while the GBP jumped to 1.1130, but these currencies remain extremely vulnerable to downside pressure.
Commodity currencies received a welcome bounce off recent lows, following a resurgent risk appetite and a falling reserve. The NZD bounced back above 0.5600, while the AUD jumped above 0.6300, but also remain exposed to downside pressure. All eyes are on the US and European CPI/PPI data.