Markets drifted, ahead of the key two-day FOMC meeting, commencing Tuesday. The Fed are unlikely to alter monetary policy settings, but may tweak QE Infinity and attempt to jaw-bone the bond market. The creeping fears over inflation have been sparked by the sharp rise in bond yields, which has caused a realignment in markets. US 10 Year Bond Yields have rise to 0ver 1.6% and now look to Central Banks for guidance. The Fed is likely to promise extensions to QE Infinity, to flood the market with even more liquidity, to pop the bubble. The massive expansion in money supply must result in inflation, at some point and the degradation of the value of currencies.
The Fed are leading the world and global Central Banks are following, with modern monetary policy. The Bank of England and the Bank of Japan will follow the Fed and likely to await to gauge the impact their actions, before revealing their own monetary strategies. The EUR looks to hold onto 1.1900, while the GBP fell below 1.3900, both mired in the suspension of key gene ‘vaccine’, AstraZeneca. Despite the bad news surrounding the distribution of the vaccine in Europe, the important ZEW Economic Sentiment report was higher than expected, in both Germany and the EU.
US Retail Sales contracted 3%, but markets largely ignored the key consumer number, as the previous month was revised up to 7.6% from 5.3%. US Manufacturing and Industrial Production both contracted sharply overnight, which dampened confidence in markets. The AUD traded around 0.7750, while the NZD drifted below 0.7200, unimpressed with a sharp contraction in Global Dairy Prices.
The Fed remains the focal point for markets, awaiting the announcement tonight, to be followed by the Bank of England and Bank of Japan.