Daily Market Commentary 24th January 2022

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Global equity markets closed sharply lower, again Friday, to end a week of dramatic losses. US equity index are heading towards correction territory (10% retracement) and perhaps further, signalling the end of the bull market? The crises enveloping European and US markets, derives from inflation and collapsing growth, which is being triggered by profligate fiscal and monetary expansionist policies and an energy and supply chain crises.  This is playing out in global markets and more especially in Europe and the US. The Fed is being forced to address the catastrophic inflation rampaging through the economy, combined with a supply chain crises, leaving shop shelves empty. This is the worst of economic problems and has become an extreme social and political issue.

The Federal Reserve meet next week and will signal three or four interest rate rises for 2022. The pressing urgency may force the Fed to cut QE before March, as previously indicated. The fiscal largesse and massive deficit spending, will also need to be reined in, as this has been like petrol on the inflation dumpster fire. The rising interest rates and tighter liquidity is driving Bond Yields higher and equities lower. This rapid reversal of monetary and fiscal policy will test asset bubbles, across the classes, as well as the US Dollar.

The UK announced an end to mask and vaccine mandates, which triggered a sharp rise in the GBP, but a sharp decline in retail sales (-3.7% for the December Quarter) and plunging consumer confidence, sent the GBP back to 1.3550. The return to an open economy (free of mask and vaccine mandates) and the Bank of England’s rising interest rates policy , should ensure a steady improvement in the GBP. The EUR traded 1.1350, as European Countries continue to pursue mask and vaccine mandates, destroying economic activity.

The commodity currencies are in no better shape, with the NZD plunging to 0.6700, while the AUD fell back below 0.7200. The Australian Dollar received some support, after a better than expected employment report, but remains under extreme economic pressure with the Omicron virus invading the country. The NZ regime continues to pretend they can hold off the world and rely on failed mask and vaccine mandates. The truth will out, anon.

This coming week will focus on the Federal Reserve interest rate decision and inflation/growth numbers across the globe.

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