The ‘Santa Claus Rally’ hit the wall and hard. Equities tumbled across the US and European markets, as fears of a looming recession in 2023, come to the fore. The Kansas City Fed Manufacturing Index was minus 13, while Q3 GDP pooped back into positive territory, but this is not expected to last. Much of the positive growth in the US, is fiscal stimulation, with another massive deficit omnibus bill of USD$1.7 Trillion, about to be passed through Congress. This is complete deficit/debt funded and will be highly inflationary. The Fed are taking every possible step to combat inflation, but this profligate fiscal destruction, will reignite the inflation crises. The Federal Government is now on the opposite side of the Federal Reserve in the war on inflation. The GBP fell below 1.2000, following a crash in GDP, which contracted by 0.3%.
The rising reserve pushed the commodity currencies lower, with the AUD falling back to 0.6650, while the NZD crashed to 0.6230. The recent crushing economic data from New Zealand is taking it’s toll on the currency and global fears of recession will damage commodity demand. The recent resurgence of the Yen, surging to 131.60, has been all about the Bank of Japan. The expansion of caps on the 10 year Government bond rate is miniscule, but speaks to a change in attitude towards monetary policy. The Bank of Japan has been relentless in their firm monetary policy, holding interest rates at record low levels, defying inflation and the orthodox cures. The Bank of Japan minutes will be released later today and will be keenly watched by markets. Japanese CPI will also be released and this may rattle some cages? Markets will have the final trading day before Christmas and will watch the Fed’s favoured inflation gauge, the PCE, while weighing the prospects of global recession for 2023.