Daily Market Commentary 13th October 2022

The Bank of England has been forced to continue interventions into the bond market, to keep the lid on the erupting volcano. The Bank of England had scheduled ending QE and raising rates in an effort to fight the war on rampant and destructive inflation, but has been forced to reverse the QT and instead leap headlong into massive bail-out Gilt purchases. This emergency intervention was an effort to save the bond market and the Pension Funds highly dependent on long-dated bonds (LTI’s). The Bank of England has extended the emergency bond buying program until D-Day, Friday the 14^th of October, but may be forced to further extend? The UK markets and economy is in complete turmoil. GDP contracted in August, Industrial and Manufacturing Production has plunged into deeply negative territory, while the Bank of England is plugging holes in the dyke to cover the fiscal disaster the UK Government has created. How long can this catastrophe last?

FOMC minutes confirmed the Fed’s commitment to hold the line on interest rate rises until inflation is quelled. This did not surprise and other Central Banks will follow, with the exception of the Bank of England, which has been focused on fighting inflation, until the markets turmoil turned into a crises. The rising US Dollar pushed the EUR back to 0.9700, while the GBP fell back below 1.1000, before recovering back to above 1.1100. The Tankan report was grim for Japan, plunging business confidence for the second straight month. The Yen crashed back to 147.00 and may force the Bank of Japan to intervene on the currency once again.

Commodity currencies coped well with the market turmoil, with the NZD jumping back above 0.5600, while the AUD looks to regain 0.6300. Markets will focus on the German and US inflation numbers set to be released tonight, while keeping a close eye on UK market disfunction.