US equity markets crashed, to close out a week of losses, triggered by Central Bank commentary and actions. The Bank of Japan left rates unchanged but signalled an end to the ‘emergency actions’ taken to combat the pandemic. The Governor did say that there would be ‘no normalisation’ of monetary policy for Bank of Japan, any time soon. This follows the Fed and ECB, who indicated increased tapering of QE, while deferring interest rate rises until 2022. The Bank of England surprised many and acted, raising interest rates, to attack blow-out inflation. The US, EU and Japan all face stagflation, as growth collapses and inflation soars. The Fed have been reckless in their approach to monetary policy and should have cut all QE and raised rates by now, as inflation will become a massive threat to the US economy next year.
The US Dollar rebounded slightly at the close of the week, with the EUR falling back to 1.1240, while the GBP crashed to trade 1.3230. The pandemic is still a major threat to the global economy, not so much from the virus, but the oppressive restrictions imposed by political leaders. The coming week will focus on growth (or lack of it) and inflation.
In the lead up to Christmas we may see more weakness in markets, supply chain restraints and demand weakness. This is hurting the commodity currencies, with the AUD crashing to 0.7120, while the NZD has plunged to 0.6730.