US equities partially rebounded overnight, following severe losses suffered in the previous session due, to the shocking CPI/Inflation number. The spike in inflation, to 4.2% pa, is not a big surprise, but the magnitude of the jump was. The CPI components have been manipulated over the years, to hide some of the inflation measured in the US economy(as has been the case in most Western economies), so this is a very big number. It sent shock waves across the markets, especially considering the context, the shocking Non Farm Payrolls number released the previous week.
The US economy is under extreme pressure, with the gas shortages due to the Colonial pipeline shut-down, becoming a huge metaphor. The Colonial shut-down was attributed to software hackers (who were apparently paid the ransom), will take some time to return to normal, as the pipeline is massive and slow moving. This highlights the vulnerability of the US economy to energy failures, as did Texas recently, with the failure of renewables due to adverse winter conditions. The Dollar consolidated its gains, with the EUR trading 1.2060, while the GBP drifted to 1.4020.
The commodity currencies remained depressed, with the AUD holding above 0.7700, while the NZD trades 0.7770. The Australian economy is floating in an ocean of liquidity, with the Governments latest budget flooding the market with fiscal stimulus, only exaggerating the monetary largesse of the RBA. The Liberal Government has ditched any concept of fiscal conservatism and opted for the mantra of the left, ‘never let a crises go to waste’.