US Equity markets continued to suffer heavy losses overnight, while the US Dollar rallied strongly, despite bond Yields falling. Currencies may be experiencing a flight to safety, as the Yen also experienced some support despite recent losses, rallying to 128.00 in the face of a stronger reserve. Global markets digest the continued rampant inflation being experienced across the USA and Europe and realise that the only option is Central Bank action. Central Banks need to raise interest rates sharply, as all but the ECB are in the process of doing, but also cut QE and heavily contract Central Bank balance sheets.
The prize for failure, in the modern world appears to be rewards, as the Federal Reserve Chairman Powell was re-confirmed by the Senate overnight. This man has been responsible for the monetary malaise, that has encouraged fiscal largesse, massive deficit expenditure and deficits funded by the Central Banks. This is what is called ‘failing up’! The latest US PPI came in at an annualised 11%, which will continue to build inflationary pressures and drive interest rates higher. The EUR crashed to 1.0360, while the GBP collapsed to 1.2170, amidst a slew of dreadful economic metrics. UK Industrial and Manufacturing Production contracted and GDP collapsed to below zero, for the March month.
The steep rise in the US Dollar pushed the commodity currencies lower. The NZD spiralled down towards 0.6200, while the AUD fell to 0.6830, as an uncertain Federal Election looms large. Look for the local NZ Business PMI to confirm market perception, while markets look ahead to the important University of Michigan Economic Sentiment number, released tonight in US trade.