US inflation exploded again overnight, with headline CPI hitting 5.4%, smashing the expectations of markets of below 5%. Core Inflation (ex-Food & Energy) hit a 30 year high. This was sobering news for markets, with equities retreating from record highs while Bond Yields and the US Dollar rebounded. This is predictable news considering the massive liquidity flooding the US economy and most countries around the world. The Federal Reserve Chairman Powell will appear in front of Congress tonight and claim it is transitory and to be blamed on the virus, which is apparently the universal cause of every economic predicament? US Bond Yields have been spirally lower recently due to massive and infinite QE programs, but this was a brick wall. The US Dollar surged higher, with the EUR falling to 1.1780, while the GBP slipped to 1.3820.
The Bank of England withdrew Bank restrictions on ‘Share Buy Back’ and ‘Dividends’, citing a better than expected economic recovery, due to the successful vaccine roll-out. They will find that the vaccine does not protect them from the virus and may in fact be a danger, in itself. There were warning signals, regarding this, from the Central bank. Commodity currencies continued to suffer the resurgent Dollar, with the NZD retreating to 0.6930, while the AUD fell to 0.7430. NZ Food inflation was considerably higher than expected and Australian New Home Sales came off highs. The Australian economy is suffering major lock-down restrictions in the largest State of NSW and this does not bode well for economic activity, not to mention massive bail-out money funded by even further deficit and debt.