Daily Market Commentary 21st January 2022

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The German PPI number exploded, jumping 24.2%, recognising the massive impact the energy and supply chain crises iare having on input costs and thus inflation. The UK inflation rate has jumped to 5.4%, a thirty year high, fuelled by the same pressures. Inflation is surging and growth is flagging fast, in the face of viral regulatory measures imposed across Europe (although the UK has done a U-turn and repealed all the restrictions overnight), setting the stage for an stagflation scenario. The EUR drifted back to 1.1320, while the GBP held 1.3620, boosted by the overnight abolition of vaccine and mask mandates.

US Weekly Jobless Claims spiked, jumping to 286,000 claims for the past week, confirming the serious issues facing the labour market. Existing Home Sales contracted 4.6%, casting a pall of gloom over a leading sector, while equities staged a rear-guard action, after recent heavy losses. Australian Employment data was once again better than expected, with the headline rate plunging to 4.2%, but serious structural issues remain and this is only aggravated by the surging omicron virus and the Government restrictions and regulations, in reaction to them. The AUD jumped in response to the good news, trading 0.7250, while the NZD meandered around 0.6770.

Inflation and growth remain dictators of markets activity and rising US Bond Yields only confirm that the Fed will be dragged, kicking and screaming, into a whole new world of reality interest rates.

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