The DOW drifted off historical record highs overnight, as the liquidity fuelled global equity markets, balance the asset bubbles with the growing threats from the supply chain, a growing global energy crises and inflation. Inflation and growth are key to global economies and thus markets. Central Banks have recognised this and interest rates are on the march. The Bank of England is about to embark on tapering of QE and perhaps raising rates, following the RBNZ, which has already began to raise interest rates. Global growth forecasts are being slashed and we are now probably already in a dangerous period of ‘stagflation’, not seen in 50 years.
Asian markets were nervous, after further disruptions in the massively inflated Chinese property market, became more apparent. The ‘Evergrande Group’ pulled an intended sale of it’s property services division, but did secure a 3 month extension on a massive and expired bond. EU Consumer Confidence continued to collapse, contracting a further 4.8%, while the Philly report continued sharp decline. The EUR fell back to 1.1620, while the GBP fell below 1.3800, amid growing economic fears and a resurgent virus.
NZ Credit Card spending crashed, contracting 12.9%, reflecting weaker demand and the crises of lockdowns across the besieged State. The resurgence in NZ interest rates had triggered a rally in the currency, which suffered a sharp reversal overnight, with the NZD falling back below 0.7150. The rising reserve only exasperated the decline in commodity currencies, with the AUD plunging to 0.7450, despite spiking commodity prices.
The energy crises in Europe and Asia, supply chain problems and soaring inflation, are the only barrier to expanding asset bubbles, but are kryptonite in their nature.