European and US equity markets plunged deep into the red, to open a new week, hit by inflation fears and rising interest rates. In Europe the energy crises continues to destabilise the European markets and drive inflation. The Nord Stream 1 gas pipeline is being shut-down for ‘maintenance’ on August 31st, which sent gas prices spiralling higher, from already excessively elevated levels. The price of energy in Europe is not only playing out in a cost-of-living crises, but is severely disrupting business and in particular manufacturing. Massive inflationary pressures require immediate and severe action from the ECB, which has been reluctant to act, allowing the crises to build. Interest rates not only need to rise, to effective levels, but monetary tightening (QT) must be dramatic and effective. The latest CitiBank report on inflation, is that the UK could hit more than 18%, in the coming months! The EUR plunged below parity, trading down to 0.9930, while the GBP crashed back to 1.1740.
Markets will focus on inflation, growth and interest rates, as the Fed’s grand meeting of Central Banks kicks off in Jackson Hole, later this week. Fed Chairman Powell will be the host and key-note speaker, so markets will be focused on monetary policy, in the lead up. US 10 Year Bond Yields pushed back up above 3%, while European yields are also spiking, in reaction to the energy and inflation crises.
Commodity currencies were softer in reaction to market activity and the firming reserve, with the AUD dropping to 0.6860, while the NZD fell back to 0.6160. The immediate focus for markets will be on flash PMI numbers out today in Australia, Japan, Europe and the USA.