Global equities turned heavily negative overnight, following Central Bank actions raising interest rates, to combat rampant global inflation. The Fed raised by 75 basis points, the Bank of England by 25 basis points and the Swiss National Bank by 50 basis points. The ‘transitory inflation’ and ‘peak inflation’ arguments have been summarily binned, as reality is hitting citizens and destroying Western standards-of-living. Politically these Central banks must act, to prove they are in charge, but the very action will drive these economies into recession. The real test is when the recession hits, will these Central Banks have the fortitude to stamp out inflation and hold the line? I do not think so.
US Housing Starts contracted by 14.4%, while Building Permits fell 7%. The Philly Fed Manufacturing Index crashed by 3.3%. The spiralling inflation is playing out in the wider economy, with data turning heavily negative. Equities collapsed overnight, following the post-FOMC meeting, which cleared out the ‘shorts’. The DOW crashed below the headline ’30,000’ and looks to be in a world of hurt. The US turned sharply negative, with the EUR rallying to 1.0570, while the GBP jumped to 1.2350.
Australian Unemployment pushed a little higher, but the labour market remains tight, for now. The AUD jumped back to 0.7050, while the NZD pushed above 0.6350, despite a negative GDP measure. QI GDP in NZ contracted 0.2%, much lower than expected, but is only the tip of the iceberg. Markets continue to focus on inflation and Central Banks.