Daily Market Commentary 14th October 2022

Markets were in a state of shock overnight, not so much with the higher than expected surge in inflation, but the market reaction. US CPI came in at 0.4% for September, 8.2% for the year, heading in the wrong direction. The Dow reacted as expected initially, falling 500 points, but a massive reversal saw markets wipe off all the share-market losses and rally 800+ points! It was a massive reversal and a shock, even considering how volatile the markets have been. US Bond yields rallied as expected, with a 10 year auction settling at 3.93%, up from the last 10 year auction of 3.51%. The inflation number will ensure the Fed raises rates further and thus should be a massive red-flag for equities, but no. Perhaps it is a sign markets have been caught short, or perhaps this may be seen as a peak inflation number?

The German CPI number surged to 10%, from 7.9%, while Swedish CPI exploded to 10.8%. European inflation is out-of-control and reflects the lack of action from the ECB, which has come far too late and not aggressively enough. The European inflationary crises is aggravated by the energy crises and  energy supply issues, resulting from the Russian sanctions. The EUR plunged following the US CPI number release, dropping to 0.9640, but the US equity rally has raised risk appetite and the EUR has rebounded to 0.9800. The GBP suffered a similar fate, plunging to 1.1060, before surging back to 1.1340.

Commodity currencies experienced the same whiplash, with the AUD crashing to 0.6170, before recovering back to 0.6300. The NZD suffered a similar fate, with a massive rebound from lows of 0.5520, to climb all the way back to 0.5650. Market volatility is almost normal but the surge in risk appetite is against the economic fundamentals and must be a technical re-adjustment. Local markets will look for some calm following the turmoil in US market trade.