Daily Market Commentary 29th August 2022

Federal Reserve Chairman Powell delivered a powerful keynote address to the attendees of the Jackson Hole Economic Forum and the world. The Fed Chairman reinforced his commitment to his war on inflation and warned there would be ‘some pain’ ahead for the US economy. The hawkish speech sent equity markets into turmoil (the DOW falling more than 1,000 points), as if recent softer inflation data, may have triggered some relief from the Fed’s tightening monetary policy. The Fed’s preferred inflation gauge, the PCE, was higher but only marginally. The recent softer oil prices have led to softer inflation numbers, but at some heavy cost, as the US Strategic Oil Reserve has been dangerously depleted.

In the UK authorities announced an 80% increase in energy bills, with more to come. This follows a 50% increase in energy prices, in the last announcement. UK inflation has topped 10% and is predicted to spiral past 13%, in the coming few months. Serious cost-of-living pressures are resulting in major strikes across the country and social upheaval now becoming a political threat. Similar circumstances are expected across the EU. The GBP fell back to 1.1730, while the EUR is well below parity, trading down to 0.9950.

The rising reserve hit commodity currencies too, with the AUD falling below 0.6900, while the NZD crashed to 0.6130. The coming week will have a plethora of global economic data releases, headlined by inflation and growth, culminating in the all-important Non-Farm Payroll number released this coming Friday.