US Equity markets closed out the week near record highs, despite the record CPI inflation number, released Thursday. Markets opted to ‘talk their collective book’, when accepting the Federal Reserve and the US Treasury argument, that inflation is ‘transitory’. Many people have not been around long enough to remember how stubborn and damaging inflation can be and the inevitable economic recession it always leads to?
In the US, the University of Michigan Economic Sentiment report was up and their were very interesting resulting moves in the bond and currency markets. US 10 Year bond yields fell back to 1.45%, despite the record CPI, while the Dollar gained strength, in an apparent contradiction? The EUR fell back to 1.2100, while the GBP slipped to 1.4100, despite some bullish UK Industrial and Manufacturing Production numbers.
The stronger reserve tamed the commodity currency rebound, with the AUD retreating to 0.7700, while the NZD fell to 0.7125. Attention in the coming week will focus on the FOMC meeting, which will come Thursday, accompanied by a press conference. The Fed may dismiss the surging inflation and continue to label it transitory, or upset markets and consider tapering the QE Infinity? The Bank of Japan will follow the Fed with their own decision the next trading day.