Daily Market Commentary 12th September 2022

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Global equity markets rallied strongly to close out yet another volatile week. Inflation remains the major concern gripping markets and the ECB acted accordingly, raising interest rates 75 basis points. The Federal Reserve reaffirmed it’s intentions and committed to the war on inflation. The rising interest rate environment, was baked in and equity markets rallied strongly, in the latter part of the week. The US Dollar also eased back, as fears were allayed, with the EUR breaking back above parity to trade 1.0050. The Bank of England has delayed the next monetary policy meeting, as the UK is in mourning for the passing of QEII, while the GBP looked to regain 1.1600.

The coming week will be dominated by inflation numbers, which are expected to ease in Europe and the USA. The continued decline in the oil price has alleviated some of the pressure on inflation, thereby leading to speculation that it may have peaked. The oil prices have eased partly as demand slips, but also the actions of the US Government, who have severely depleted the Strategic Oil Reserves. The test will come for oil prices, when the reserves are depleted and sanctions remain, along with an OPEC commitment to cut oil production.

The flagging reserve allowed commodity currencies to regain some lost ground, with the AUD consolidating above 0.6800, while the NZD looks to hold 0.6100. Inflation is set to dominate market activity in the coming week, with reading from the US and Europe. Expectations are for a decline in inflationary pressures, allowing for speculation of an end to interest rate rises. The energy crises in Europe will have a say on this narrative.

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