Markets ended another volatile week, trading flat, reaching an impasse. The name of the game is Fed speculation on the ‘will they, or won’t they?’ pause/pivot, and the million dollar question, ‘has inflation has peaked?’ The Federal Reserve Chairman has been consistent and forthright, that the Fed is thoroughly committed to winning the war on inflation. Fed Member Bullard, has been out in the media this week reinforcing the message, floating a range of between 5-7%, for peak interest rates. He considers this would be the required level to be ‘sufficiently restrictive’ to conquer runaway inflation. Aggressive QT is also a essential part of the treatment. Markets continue to speculate and bond yields remain at heavily discounted levels. This may be good for funding deficits/debt and offloading the mountain of debt on the Fed’s Balance Sheet, but there will be a reckoning and a convergence between market rates and reality.
The coming week will be focused on flash PMI data from across the world, while the Fed minutes will reiterate the Fed’s hawkish monetary policy stance. Inflation and growth remain key economic drivers of the equity bond and currency markets. European CPI is on the rise and the ECB has been very very late to the party. The recessionary conditions and falling consumer demand has lead to softer energy prices, but this is temporary, as the Northern Hemisphere moves headlong into a very cold winter. Anecdotal evidence of cost-of-living hardship, across the Western economies, becomes overwhelming and political and economic reactions become more desperate. The EUR drifted back to trade 1.0320, while the GBP bounced to 1.1900, following the latest Tory Mini-Budget.
Commodity currencies drifted, as softer demand threatened commodity prices . The RBNZ has their latest monetary policy decision, coming this week and they are expected to raise rates by up to 75 basis points. You do not have to tell the citizens of NZ that cost-of-living is out of control! The RBNZ Governor should focus on his job, fighting inflation, and not the social window-dressing of ‘woke politics’. The NZD will begin the week trading around 0.6150, boosted by the prospect of RBNZ rate rises, while the AUD trades well below 0.6700.