Global equity markets closed out a week of extremely strong gains, as Ukraine/Russia Peace Negotiations continue and commodity prices begin to settle (albeit at rather high levels). A solution to the Ukraine crises will come in the form of a negotiated settlement, the question is when? The outcome will be much more impactful on the worlds’ trading and monetary systems than just the Ukraine. The sanctions imposed upon Russia has forced Russia and her allies to move to a non-US Dollar payment system, which will force at least an addition of another reserve currency. The US has long benefitted the reserve currency status, as debt issuance and demand have allowed the US to live well beyond their means. The US has racked up massive debt (over USD$30 Trillion), while blowing out the monetary system by expanding the Federal Reserve balance sheet up to USD$10 Trillion. The deficit is running at USD$1 Trillion p.a. and this does not include the $trillions additionally spent on the pandemic. The fiscal and monetary system of the US, and by extension the world, is now under serious threat or at the very least fundamental change . Monetary expansionism has seen inflation roaring through Western economies, only exasperated by supply chain issues and the sanctions.
US equities roared back in the week just been, but we can expect the extreme volatility to continue, as the war rages on and the global economic and energy crises only expand. The EUR fell back to 1.1050, to close the week, while the Yen has crashed to 119.40. Surging inflation and failing growth, could lead to stagflation and a deep recession by years end.
The surging commodity prices have prevented a collapse in the associated currencies, but they remain vulnerable. Deficit and debt are a huge problem, as is cost-of-living pressures and inflation. The NZD looks to regain 0.6900, while surging commodity prices, have allowed the AUD to break back above 0.7400. The coming week will focus on he Ukraine war and the economic fallout, while keeping a close eye on energy and global inflation.