Daily Market Commentary 13th October 2021

The growing energy crises in Europe may be spreading globally, as prices continue to rise and supply issues remain dire. Much of the problem is that Europe is heading into winter and demand is on the rise, while many Western countries have shifted the balance of their energy production to more green forms of generation, which do not provide the constant base-line supply necessary. Solar and wind are notoriously intermittent and many countries have moved away from nuclear or fossil fuel (gas, oil and coal). This problem will only become more dire as Governments adopt increasingly green energy supply sources, in the face of ever-increasing demand from the consumer society.

Markets were keenly awaiting the US CPI inflation number, which is expected to be at the elevated 5.3% and no longer strikes fear into markets. The FOMC minutes are set to be released, confirming that ‘tapering is on the way’, but denying any urgency, as they continue to label inflation as a supply issue and ‘transitory’. The IMF downgraded global growth forecast and recommended tightening monetary policy in the face of rising inflation. US PPI may be a more relevant and indicative measure in current markets? Japanese PPI came in at 6.3%, nowhere near the spirally US and European levels, but enough to rattle a few cages. The Yen has been weakening noticeably in the last few trading days and now has fallen to 113. 60, while the GBP dipped below 1.3600. The ECB is considering cutting pandemic spending, on both the fiscal and monetary front, which has caused the EUR to fall back to 1.1520.

Energy prices have been on the rise and given some support for commodity currencies, albeit from damaging low levels, with the AUD trading around 0.7350, while the NZD attempts to hold above 0.6900. inflation and growth remain key drivers of the economic narrative this week.