Daily Market Commentary 1st April 2022

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Markets are swirling with speculation over the Ukraine war and the lack of progress, in the Istanbul peace talks. High hopes are misguided, as a negotiated solution is some time off. The peace settlement will come when a convincing military solution is obvious and unavoidable and then, the losing side will capitulate and come to peace terms. Markets closed out the March month, end of the first quarter, down but following a strong rebound in the month. Equities recovered from huge losses in January and February, while Bond yields began to rise, in line with Central Bank and market expectations. Inflation has been spiralling out of control, driven by fiscal and monetary largesse and exasperated by supply chain issues and the fallout from sanctions. This is only going to deteriorate further and growth will plummet, in the second quarter. The US PCE number was released overnight, surging to a record 6.4%, which is the measure the Fed apparently pays most attention to. The Fed has already hinted at more aggressive interest rate rises, in a belated effort to tackle inflation, but must remove all QE and begin to contract the balance sheet, if they are serious about controlling runaway inflation.

The USD stabilised overnight, with the EUR drifting back to 1.1050, while the GBP traded 1.3125. Bond Yields are on the march, globally, driven by fiscal and monetary expansionism. Inflation and interest rates are accelerated by the energy and food crises, triggered by the suicidal sanctions imposed by the West upon Russia. This situation is about to get a lot worse, as Russia demands payment for essential gas, in Roubles, which the Europeans have refused to do. The Russians have given March 31st as the deadline. This could result is rationing and an even greater energy crises in Europe, especially Germany. Russia can also escalate the crises further, by expanding demands for payment in Roubles for gas, agriculture products, minerals and fertilisers. The economic sanctions imposed on Russia could become a nightmare for the authors of said sanctions, rather quickly.

The rebound in the reserve allowed the NZD to fall back to 0.6930, while the AUD fell back below 0.7500. Commodities remain well bid, supporting these currencies, but supply and the cost to consumer nations, remain a serious global issue. All eyes turn to the all important Non Farm Payrolls, released tonight in the US.

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