Global markets experienced another week of massive volatility, triggered first by the US Mid-Term Elections and then the US inflation number. The US elections were meant to see a massive ‘Red Wave’, for the Republicans, to secure both houses of Congress. This wave did not eventuate, although the GOP may sneak a victory in both Houses, but the disappointed markets tumbled on the news. Markets had expected a victory and thus a possible split Government, thereby closing the deficit/debt bonanza that has fueled the runaway inflation. The US inflation number had the opposite effect, beating all expectations, falling to 7.7%! The much improved inflation number, led to further speculation that the Fed will pivot/pause, on their aggressively hawkish monetary policy strategy. Equity markets soared and US Bond Yields and the US Dollar tumbled. The EUR has zoomed to 1.0350, while the GBP has vaulted to 1.1850, despite the terrible economic conditions.
UK GDP crashed to minus 0.6% for October and minus 0.2% for Q3, but a very fortunate revision of Q2 GDP numbers (up from contraction to a heroic 0.1% gain), allowed the UK to avoid a technical recession. The Bank of England have forecast the deepest recession since the 1950’s, which may extend for two years, as markets await the Fiscal Plan from the latest incarnation of ‘Tory’ Governance. The Sunak lead Government is expected to raise taxes and cut spending, in an attempt to fill a GBP50 Billion black hole and torniquet the gushing wound, to prevent the UK economic bleed-out. German inflation hit 10.4%, while further readouts from across the EU and UK, in the coming week, will confirm the reality of the energy crises. Softer energy prices, in the lead-up to the US Mid-Term Elections, has allowed inflation to peak in the US, but this may well be temporary as the Strategic Oil Reserve is thoroughly depleted.
The collpase in the reserve currency has allowed the commodity currencies to come roaring back, with the AUD looking to regain 0.6700, while the NZD jumps above 0.6100, despite weak economic data. NZ Manufacturing PMI contracted and Food Inflation hit a 14 year high. This coming week will focus on inflation and growth, while the UK will be focused on the latest rendition of a Mini-Budget/Financial Plan. Australian Employment data always draws local market interest.