Daily Market Commentary 21st October 2021

US equities continue to trade around record highs, supported by the unprecedented volume of liquidity washing around markets. The only threat to markets is sentiment and inflation. Earnings season has been good, with more than 80% of S&P components beating market expectations. The EU CPI number was in-line with expectations, as was the UK, with the EU coming in around 3.4% and the UK 3.1% respectively. These numbers are way above Central Bank target levels, but do not yet seem to scare the daylights out of Central Banks. The Bank of England Governor has already warned that the energy crises, will combine with these higher inflation levels, to drive an inflation crises that must be addressed through monetary policy. Interest rates are set to rise, as are the headline inflation rates, as Central banks can see the real-time inflationary numbers. The EUR continues to post gains on the USD, trading up to 1.1650, while the GBP consolidates above 1.3800, despite the upwardly mobile US 10 Year Bond yield.

The Japanese trade deficit continued to increase, despite a surge in exports (+13%), due to a massive explosion in imports, which increased by an almost unbelievable 38.6%! The energy crises has peaked demand for energy prices and commodities, with Oil breaking through USD$83/barrel. The surge in oil has also been reflected in coal prices, which have pushed up to all time record highs, trading up to USD$250/t. These has boosted commodity currencies, with the AUD rallying above 0.7500, while the NZD has looked to regain 0.7200.