US equity markets collapsed Friday, finally reconciling the impact of inflation on the global economy, with the DOW falling nearly 1,000 points! The Fed has come to the party very, very late, but finally recognised the enormous danger, runaway inflation poses to the US economy. Federal Reserve Chairman Powell has decided to go on the attack, hinting that a 50 basis point rises is on the cards, for the next FOMC meeting. Europe is in the middle of an energy crises and a burgeoning food crises, driving runaway inflation and cost-of-living pressures, which in turn hits consumer demand. The US 10 year bond yield hit 2.95%, driving the US Dollar higher, pushing the EUR back below 1.0800. The GBP has collapsed to 1.2820, as inflation and rising interest rates wreak havoc across the British economy, reflected in a collapse of consumer confidence.
The rising reserve and softening commodity prices are smashing the associated currencies, with the NZD plunging towards 0.6600, while the AUD crashed under 0.7250. The Chinese lock-downs are threatening commodity demand, while inflation spirals out of control, pushing interest rates higher. A European recession looks inevitable, as sanctions backfire, while the French election throws some uncertainty into the mix.
The coming week will continue to monitor inflation across the Western economies, the impact on interest rates and the fallout on consumer demand. GDP growth will also be watched closely, as the threat of stagflation, becomes ever more real.