The US inflation CPI number came in at 6.8%pa, topping expectations and reaching an almost 40 year high. The markets were not surprised or disturbed by the news and equities rallied to close out a week of big gains. US Bond Yields continued to firm as markets anticipate the Fed will advance the promised ‘QE tapering’, while considering interest rate rises for the New Year. The University of Michigan economic sentiment report was positive, as markets brush off the latest mutation of the Covid virus. The USD drifted lower, as the EUR regained 1.1300, while the GBP pushed above 1.3250. The GBP is to be watched closely as the BOJO Government look to implement new restrictions and mandates. UK Industrial and Manufacturing Production both fell sharply to close out a very worrying week.
Commodity prices are recovering and boosted the much damaged associated currencies, with the NZD attempting to regain 0.6800, while the AUD pushes above 0.7150. The coming week will probably be dominated by Central banks and speculation surrounding inflation and monetary policy. The FOMC meeting next Tuesday, will be followed by the ECB, Bank of England and Bank of Japan. None are likely to act on interest rates but may tweak monetary policy. Inflation remains the biggest threat to Central Bank ‘modern monetary theory’ and to asset bubbles.
