Daily Market Commentary 22nd July 2022

The ECB raised interest rates by 50 basis points, in a move that may have surprised a few, but falls way short of addressing the inflation crises that has enveloped Europe. The ECB has been caught between a rock and a hard place. The rock being inflation and interest rate rises, while the overwhelming debt, is the hard place. Deficit and debt amongst many of the member States is crippling and rate rises, mean many would fail to service their debt. Italy is the main protagonist, with soaring debt and deficits, while the Government has collapsed. The ECB should have acted last year, to nip inflation in the bud, but fiscal largesse was higher on the priority list. They are in a very, very bad fiscal, monetary and economic position. The EUR jumped on the news, but settled back down, to trade below 1.2000. The GBP held around 1.1950, despite a softer US Dollar, while the Yen strengthened to 137.50.

The Philly Fed Manufacturing survey collapsed, plunging to negative 12.3, while US Jobless claims are on the rise. The Bank of Japan continued to ignore the global inflation environment and left rates unchanged and negative. Japan is the only Western economy not experiencing rampant inflation, as yet, but the trade numbers reflected massive Import increases, which means PPI will probably translate into the CPI.

The commodity currencies were supported by a weaker reserve, with the AUD trading around 0.6900, while the NZD consolidates above 0.6200. There will be interest in the Japanese CPI number, due to be released today, to validate the stance of the Bank of Japan?