Markets are crashing across the Western world, with equities charging into ‘bear market’ territory, while crypto’s collapse. US Bond yields have woken up, with the 10 year yield hitting an 11-year record high (3.45%), while the yield curve flirts negative. The trigger for the latest round of ‘risk-off sell-offs’ was the latest US inflation number, blowing through expectations, at 8.6%. The markets were expecting inflation to have peaked, but it is accelerating upwards, leading the Fed to even more aggressive action. The Fed will probably raise 50 basis points, but will perhaps consider 75 basis points, despite ruling this out at the last FOMC meeting. Inflation is a economy wide cancer and now the hit to the consumer is starting to be realised, with demand lead problems, as discretionary spending is eaten up by basics of food and energy. The West has only exaggerated the problem by imposing sanctions on the world resource super-power, Russia. The flight to safety in the currency markets has seen the EUR fall to 1.0400, while the GBP has collapsed to below 1.2000, ahead of the Bank of England meeting.
US PPI remained extremely high (10.8%), which will feed directly through to inflation numbers, further aggravating the critical situation. Inflation is killing the consumer and trashing citizens standards-of-living, across Western nations, while proving an existential threat to less developed nations. Food and energy prices are key to sustaining life and spiralling costs threaten the vulnerable populations, the most. The commodity currencies have suffered the safety of the rising reserve, with the AUD crashing to 0.6850, while the NZD plunged to 0.6200. Currencies will remain extremely volatile, as Central Bank policy decisions play out in the markets. ‘Transitory Inflation’ should be a repetitive nightmare phrase haunting politically co-operative Central bankers.