Daily Market Commentary 13th June 2022

The US CPI inflation number blew markets away on Friday, sending equities tumbling once again, while the US Dollar safety play resumed. The headline CPI number surged to 8.6%, breaking 40 year old records, collapsing expectations that inflation in the US was peaking. Inflation is soaring and Central Banks are faced with an existential threat to their economies and their citizens standard of living. The ECB has failed at every post, failing to address inflation or withdraw monetary expansionism. What part of 8.1% does ECB President LeGarde not understand? The inflation horse has bolted.

Inflation is now gripping Western economies and Central Banks are way behind the curve. The fiscal deficit largesse that triggered inflation, has been ignored and worse, funded by Central Banks. This is at the heart of the inflation crises and only been antagonised by the energy and food crises. Western Sanctions on the world energy and food superpower, Russia, has only exasperated the crises. US equities are crashing as risk appetite plunges, while the US Dollar has been attracting safety flight. The EUR has crashed to 1.0600, while the GBP fell to 1.2300, with the Bank of England due to meet this coming week.

Global inflation is the key economic indicator and markets will be watching CPI/PPI data releases. The FOMC meeting will be watched closely and the question will not be, ‘will they raise rates’, but ‘by how much’? Following the Fed will be the Bank of England and the Bank of Japan. The Bank of England is already on the tightening path, which they will only become more committed to, while the Bank of Japan will likely ‘remain pat’. The Japanese are the only major economy not experiencing rampant inflation, so far.

Commodity currencies continue to suffer the flight to US Dollar safety, with the AUD crashing below 0.7050, while the NZD plunged to 0.6350. GDP growth, inflation and Central Bank reaction, will continue to dominate markets in the coming week.