Daily Market Commentary 21st September 2022

The two day FOMC meeting began today, with the expectations of a 75 (perhaps 100 bp?) basis point rise in rates. Markets are anticipating this rate rise, with the 10 Year Bond rising to 10 year highs, topping 3.5%Inflation is rampant across Western economies and this has been reflected in the data. The release last week of US CPI numbers confirm the crises, while overnight German PPI hit 45.8%, up 7.9%  for August alone! Fiscal deficits and debt are the underlying driver of these inflationary pressures, but this has been amplified by the energy crises. Germany is the engine room of Europe and they are starting to de-industrialise. This portends badly for Germany and Europe. The EUR dipped back below parity, while the GBP fell below 1.1400, looking to test the 1985 lows once again.

Commodity currencies are suffering the rising reserve, but the rise in inflation and interest rates are driving the prospect of a deeper recession, thus hitting commodity demand. The NZD plunged below 0.5900, while the cross with the AUD collapsed below 0.8800 (an 8 year low and perhaps a new trading range?), while the AUD fell under 0.6700.

All eyes are now on the Central Banks, lead by the Federal Reserve and followed by the Bank of Japan and Canada. Inflation is starting to rear it’s ugly head in the ‘land of the rising sun’, so the BOJ may consider a more hawkish monetary policy?