Daily Market Commentary 14th July 2022

The much anticipated US inflation number blew away expectations, hitting 9.1%, for the June year. May was 8.6% and this was expected to nudge higher, not surge by 50 points! This will probably ensure the Fed acts aggressively, raising by 75 basis points, following other major Central Banks. The Bank of Canada shocked markets and raised rates by a full 100 basis points overnight! This is a recognition of the parlous state of the economy and runaway inflation. German and French inflation were relatively subdued, coming in at 7.6% and 5.8% respectively, but this is superficial and deceptive. The ECB has refused to address inflation, indicting only future intentions and the energy crises is destroying the EU economy. The EUR has touched parity, with the surging US Dollar, reflecting the downward spiral in Europe. The GBP managed to bounce above 1.1900, aided by some stronger than expected Manufacturing/Industrial Production numbers and stronger GDP data.

The RBNZ raised rates 50 basis points, along with the Bank of Korea, which recognises strong inflationary pressures, in line with expectations. The NZD managed to push back above 0.6100, while the AUD looks to regain 0.6800, with further pressure on the RBA. The RBNZ is in a similar situation to many Western economies, staring a recession full in the face, but forced to raise rates to combat the cancer of inflation and cost-of-living crises.

Politicians are now hoping the recession will cool energy/commodity demand and prices, thus inflation. This is a forlorn hope, as sanctions will ensure clogged supply chains and a looming global food crises.