Daily Market Commentary 25th January 2022

The global economy is suffering the social and economic damage inflicted by draconian regulation and restrictions, imposed across the world, due to the pandemic. The damage being done is reflected in the flash PMI data released in Europe and the US, especially the Services PMI, while the VIX volatility index spiked to its highest level since November 2020. The FOMC meeting beginning Tuesday, culminating in the press conference Wednesday, is driving massive market speculation. Inflation is forcing the Fed into action and they may have to address the ongoing QE, sooner than planned. Markets are already assuming up to four interest rate rises this year. The EUR traded 1.1320, while the GBP crashed back to 1.3440, with the latest flash PMI driving the ongoing economic negatives.

Tensions are high in Europe, with the US warning their citizens to leave the Ukraine, amidst massive Russian troop build-up on the border. It appears that the conflict is escalating and this is not good for markets. US equities collapsed again, to open the new week, with all the major indices in correction territory. If the sell-off continues we may move into a bear market. The commodity currencies were savaged by the economic news, with the AUD falling below 0.7100, while the NZD crashed to 0.6660.

Inflation and the energy and supply chain crises are driving the markets lower and the Fed will reflect this.