Markets closed the week early in the US, due to the long Thanksgiving Day holiday weekend. All was calm. The Japanese equity market took a hit, with the release of the Tokyo inflation reading, which was the highest in 40 years. Core CPI jumped to 3.6%, while headline inflation hit 3.8%. The Bank of Japan has been steadfast and consistent in their monetary policy stance. The Central Bank has kept interest rates at historical lows and defended the currency on the FX markets. Inflation is beginning to become a problem, which will test the Banks resolve.
The coming week is a huge one, in terms of market data releases, which will be heavily focused on growth and inflation. The market narrative has been that inflation has peaked in the US and Europe, as energy prices stabilise, allowing Central Banks to ease their hawkish monetary stance. The Fed Minutes indicated that their policy is impacting inflation, which may allow them to ease, at least the rate of interest rate rises. Fed Chairman Powell has been forthright and clear in his determination to crush inflation, with an unwavering commitment to stamping out inflation. These two narratives do not co-exist. The softer US Dollar allowed the EUR to regain 1.0400, while the GBP, has reached back up to 1.2080.
Commodity currencies have been beneficiaries of the flagging reserve, with the AUD stabilising above 0.6700, while the NZD regains and holds 0.6200. Global inflation readings will determine market direction in the coming week.