US CPI came in higher than expected, at 5.4% per annum, consolidating at these elevated levels and challenging the Fed’s ‘transitory’ narrative. The news coming down the pipeline does not look good, with an energy crises that is hitting Europe, spreading globally and driving energy price rises and inflation, only adding to supply chain issues. This will put the pressure on the Federal reserve, who have forecast ‘tapering QE’, although the labour market remains weak and structurally disconnected in the USA. UK GDP was 6.9%, slightly better than expected, but lower than last month. The energy crises is hitting the UK hard and this number was post-economic reopening, but this does not include the growing energy challenges. UK Industrial and Manufacturing Production remained positive, but sharply lower than previous months. EU Industrial Production contracted for the month, as major industrial nations struggle through uncertain times. The EUR stabilised around 1.1550, while the GBP managed to push back above 1.3600.
China Trade data was steeply higher than expected, with exports spiking 28.1%, boosting commodity demand and associated currencies. The AUD jumped above 0.7350, while the NZD approached 0.6950, despite a shocking local Business Confidence number. NZ Business Confidence contracted to minus 8.6, not surprising considering the damaging and draconian lock-downs, imposed on the country. Australian markets are in the process of re-opening and are being boosted by the surge in energy prices, with coal prices literally off the charts! Green energy policies in Europe have been exasperated by the coming winter weather and show a sharp contrast between green ideology and the harsh reality of running an advanced industrial economy, heavily dependent on energy.
Markets will continue to focus on inflation and growth, although Australia will be keenly watching the latest employment numbers set to be released today.