Daily Market Commentary 18th April 2022

Markets were closed for the extended Easter Weekend, giving time to mull over the latest news and consider the impact on markets of inflation, the supply chain break-down, the energy crises, the Ukraine War and impact of Western sanctions. Inflation is spiralling across Western economies, hitting 8.5% in the US, a more than 40 year high. Europe is also being smashed by inflation, although the ECB decided against any action on interest rates, at least until QE has been removed over Q2. They may be forced to reconsider, as the energy crises deteriorates and a food crises escalates. Western sanctions imposed on Russia are back-firing badly, as food and energy costs spiral and supply chain disruptions become even more common and widespread.

The Federal Reserve has belatedly decided to take action on interest rates, but these will have limited impact until QE is finally removed and the Fed’s Balance sheet is greatly contacted. The major Central Banks not taking action to combat inflation is the ECB, Bank of Japan and RBA. The ECB has decided to defer any action until QE is completed over Q2, but with inflation running rampant through members States, they may be forced to reconsider soon. The RBA has not officially recognised inflationary pressures until their latest meeting, but have decided to defer any remedial action, until after the Federal election in May.

The coming week will confirm inflation manifesting in the data releases from the ECB, Japan and NZ, while the RBA will release the latest minutes. These will provide good insight into Bank’s feel for inflation and the  impact on the economy. The Fed’s Beige Book is also due for release, which could also provide some interesting window into the US economy and market reaction.