Europe is experiencing another massive wave of the COVID flu virus. Austria has announced another complete lock-down, to completely destroy the economy and Germany will soon follow. The sheer desperation, for a virus that is no more deadly than the annual flu, treatable and has a far less than 1% mortality rate. Political leaders have not undergone any serious risk/benefit analysis. The destruction of the economy is necessary to ‘Build Back Better’, according to the Political leaders, in the Western Hemisphere. This sent markets crashing on Friday, to close a week of mixed and choppy trade.
The US Dollar received support as a safety play, with the EUR tumbling to 1.1250, while the GBP headed back towards 1.3400. Bond Yields drifted lower, contradicting the rising US Dollar, as economic disaster will trump inflation. The irony of an economic disaster being the solution to inflationary woes is paradoxical, but ultimately futile. Inflation will thrive as the supply chain problems flourish and cost pressures only gain momentum. The economic, energy and financial crises will force Central Banks to face monetary reality for the first time in nearly 20 years. Modern Monetary Theory is a ‘dead man walking’.
The coming week will focus on growth, inflation and monetary remedies. Commodity currencies suffered a reality check, with the AUD crashing to 0.7230, while the NZD fell back below 0.7000. The RBNZ will probably raise rates again this coming week, as one of the few Central Banks to realise the inflationary crises, while the FOMC minutes may hint at signs of panic at the Federal Reserve? US PCE is the inflation indicator the Fed considers primary and will be released this coming week. Gone is the corrupt narrative of ‘transitory’ inflation. Global growth data will be revised much lower as reality mugs the markets.