Fear and panic spread across markets overnight, as recent consolidation, confirmed nothing more than a ‘dead cat bounce’. US equity markets were routed again overnight, once again lead by the tech-heavy NASDAQ. Frightening inflation news from the UK and warnings of apocalyptic outcomes for the consumer from the Bank of England Governor, Andrew Bailey. The language is dramatic and appropriate, as UK inflation hit historical and record highs, of 9%! The warnings of a food and energy crises have become a reality, as Unemployment reaches a level not seen since 1972. This is not a ‘transitory’ crises. Energy costs for the consumer rose 54%, in the UK, commencing 1st of April 2022. This is likely to continue all year in this heavily regulated sector. The next regulated rise, commencing 1st of October 2022, could be even higher than the 54% sustained last month. The energy crises feeds through the entire economy, with transportation and input costs, while the tight labour market could result in a serious wage/price inflation spiral. The UK is an Island, but globalism has linked all economies, and in this case, Europe is in an equally dangerous predicament. The GBP fell back to 1.2350, while the EUR fell back below 1.0500, with the energy crises taking a similar toll in Europe, as in the UK.
Fed Chairman Jerome Powell, came out aggressively supporting interest rate rises, confirming the Fed ‘would not hesitate’ to continue to raise interest rates, until inflation comes down. The Federal Reserve completely botched this inflation crises, labelling rising inflation as transitory for much of the year, for political purposes. US Building Permits and Housing starts both contracted, while transportation costs are skyrocketing, sending retail prices ever higher. The US is experiencing the highest gas (petrol) prices on record, also with a tight and structurally mismatched labour market. The sanctions imposed on the resource rich super-power of Russia, by the West, have back-fired dramatically. This is a suicidal act of economic self-destruction.
Commodity currencies were not immune to the market chaos, with the NZD back to 0.6300, while the AUD fell to 0.6970. These currencies have enjoyed the benefit of soaring commodity prices, but face the same inflation, food and energy crises as the West. Global demand will contract in a recession, as the consumer suffers on a domestic level, with discretionary income eaten up by rising interest rates, energy, food etc.