Daily Market Commentary 28th September 2022

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Market turmoil continued overnight, with Bond Yields surging in the US and UK, sending warning signals. US 10 Year Bond Yields surged towards 4%, while UK Gilt 10 years raced towards 4.5%. The collapse in the Bond Markets has been hastened by the pace in interest rate rises, which is the Central Banks answer to raging inflation. Monetary policy has been focused around funding fiscal deficits and debt, which has driven the inflation crises. There has been no shift in the US or UK fiscal policy, in fact they have doubled down, with massive increases in spending and no funding proposals. Deficits are the problem, but now debt becomes a major problem, as interest rate rises consume an ever larger chunk of the budget. US M2 has completely blown out over the last two years, so this inflationary crises should come a no surprise. Treasurers and Central Bankers are the problem.

The market turmoil has hit the currency markets, with the US dollar spiralling upwards. The EUR has traded down to 0.9550, while the Bank of Japan has had to make a rare intervention in the Yen. The UK Mini-Budget was an unfunded disaster and has seen a major blowout in the UK Gilt market and the currency. The GBP hit all-time lows of 1.0370 and may well test parity in this meltdown. The markets will have political consequences and we are seeing this already in Italy and Sweden.

Commodity currencies are not immune to the rampant reserve currency, with the AUD heading towards 0.6400, while the NZD may well test 0.5600. The prospect of a global recession is not great for commodity demand. Look for market movers today in the form of German inflation numbers and US GDP data.

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