Markets closed out a rough and volatile week, which is becoming the new normal, with equities reaching dangerous technical territory. The US Russell 2000 has lost 22% from it’s highs, putting it in an official ‘bear market’. The US shocking inflation number of 7.5%p.a., was enough to set a cat amongst the pigeons, with the Federal Reserve left with little choice but to raise interest rates. There is a chance they may opt to jump rates by 50 basis points at the next meeting and close down QE. Geo-Political issues are raising more uncertainty in markets, with tensions on the rise in the Ukraine, Taiwan and surprisingly the ‘freedom convoy’ in Canada. The terrible supply chain pressures on the US economy, is only being exasperated by the border blockades by ‘Canadian Truckies’, which is driving the US economic crises.
The Geo-Political and economic pressures inspired a safety flight to the US Dollar, along with US interest rate support, from surging Bond Yields. The EUR crashed to 1.1330, while the GBP fell back to 1.3520, despite some strong GDP and Industrial/Manufacturing Production numbers. The coming week will continue to focus on GDP growth and inflation in Europe and the USA. Commodity currencies were hit by the resurgent reserve, with the AUD falling back to just above 0.7100, while the NZD crashed to 0.6630. Australian markets will look at RBA Minutes and employment numbers, to be released in the coming week.
US Markets will be focused on inflation, in the form of PPI data and the FOMC minutes. Pay close attention to Geo-Politics in the coming week, with the US and UK beating the ‘war drums’ regarding the Ukraine and Freedom Protests spread around the globe.