Markets closed out a disastrous week, with a collapse in equities, following the higher than expected US inflation number. Inflation was expected to ease, as markets talked ‘peak inflation’, thus allowing the case for the Federal Reserve to ease interest rate rises. This narrative was blown out of the water, when inflation rose to 8.3%, while core-inflation (ex-food & energy) spiked to 6.3%. US equities collapsed, as reality hit like a sledgehammer, ensuring the Fed will continue to raise interest rates and increase the velocity of QT (quantitative tightening). US Bond Yields spiked higher and the US Dollar continued to strengthen. The GBP hit levels not seen since 1985, trading down to 1.1350, while the EUR continues to trade below parity.
Commodity currencies have been supported by record returns for their exports, but are suffering the rising reserve and the threat of a global recession. The AUD crashed below 0.6700, while the NZD tumbled below the ‘Big Number’ of 0.6000. Markets are expected to remain in a volatile state, as their focus turns to Central Bank action. This coming week the FOMC meeting should see interest rate rises of at least 75 basis points, while the Bank of England, will also raise rates by at least 50 points. The Bank of Japan is also set to release monetary policy, but suppressed inflationary pressures, will allow the BOJ to leave rates unchanged.
Markets will focus on inflation and Central Bank monetary policy in the coming week.