Daily Market Commentary 21st October 2022

UK PM Truss resigned overnight, ending the chaotic and disastrous administration, the shortest reign in history. The UK is now without a PM and looks set to select leadership that may be forced into an early election. Bond yields are creeping higher and the markets are watching closely. The UK is amidst an economic and energy crises and the political chaos and incompetence only adds to the pandemonium. The Bank of England has bailed out the political mistakes, up until now, but their quiver is running low on monetary policy arrows. The GBP traded above 1.1200, but look for further volatility, while the EUR traded around 0.9750, keenly watching a full meeting of the European Council.

US Bond Yields are marching higher, breaking above 4.2%, for the first time since 2008. The march higher in interest rates is impacting the economy, with the Philly Fed Manufacturing Index contracting sharply, while the recession bites hard. Inflation is broad-based and rampant across the US and Europe, with German PPI surging to 45.8%! The US Administration is releasing 1 million barrels of oil/day from the ‘Strategic Reserve’ to calm prices, ahead of the all-important Mid-Term Elections, due in less than 3 weeks time.

Global markets are chaotic and volatile, while the commodity currencies battle the storm. The AUD traded below 0.6300, while the NZD held above 0.5650, ahead of key trade numbers to be released later today. Markets will also focus on Japanese inflation, with expectation of a surge, which may force the Bank of Japan to act. They have been reticent to raise rates, but have intervened in the FX markets to support the currency, with the Yen breaking 150.00. They may be forced to raise rates?