Markets are pricing in very strong inflation across Western economies and anticipating aggressive action from Central Banks, in response. The US inflation rate was in line with expectations , hitting yet another 40 year high of 8.5%, but a slightly lower read on the core inflation rate, allowed equity markets to recover and arrest the recent surge in bonds yields . The core inflation rate was lower than expected and allowed markets to speculate on inflation peaking, thus triggering a big recovery rally on Wall Street, which later faded. The headline inflation rate is at a new record a 8.5%, which was in line with expectations and will ensure the federal reserve acts aggressively in their next go around. The German inflation rate rose to 7.5%, which will ensure the ECB has to consider more action on inflation through monetary policy, on Thursday .
European equities tumbled lower, lead by large selling in the big German banks, against conventional thinking. The rising interest rate environment is usually a conducive environment for banks to be working in, so something is treacherous afoot? The EUR fell back to 1.0820, while the GBP looks to test 1.3000, despite strong employment numbers.
Commodity prices headed north, once again and thus boosted the associated currencies, despite some very weak business confidence data released on both sides of the Tasman. The AUD bounced back above 0.7450, while he NZD was allowed to regain 0.6850. These currencies are being whiplashed between commodity prices and reserve currency volatility. The RBNZ is likely to continue on the tightening monetary policy program, as inflation demands, but whether this supports the currency or not, is another question to be answered?