Daily Market Commentary 29th October 2021

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The Bank of Japan and the ECB both left interest rates and monetary policy unchanged overnight, as expected. The Bank of Japan reviewed inflation and growth forecasts lower, in a slow growth environment, while the spike in inflation in the EU was labelled temporary. The ECB concluded that the 3.4% inflation rate, a 13 year high, was temporary, despite the energy crises engulfing much of Europe and supply chain challenges they face. The ECB forecasts could be called courageous, to the point of deliberately misleading, as the forecast CPI inflation falling below the 2% target level next year. The desperate attempt to explain away the stagflation, already engulfing the Eurozone, is an effort to maintain low interest rates to continue to maintain/retain fiscal and monetary expansionism. Inflation is the deadly enemy of ‘modern monetary theory’ and the Bank of England and RBNZ have already accept the myth, while the Fed, ECB and BoJ all continue to deny reality.

US Q3 GDP was 2%, down from 6.7%, which is a shocking collapse in GDP growth, while inflation is surging producing an undeniable ‘stagflationary’ economy. The US Dollar continued to lose ground, with the EUR rising to 1.1680, while the GBP pushed up towards 1.3800. Markets look forward to tonight’s EU GDP and CPI numbers and the US PCE data. The Fed use the PCE as their inflation indicator, so this has become an important measure of inflation.

Commodity currencies were beneficiaries of the weaker reserve, with the NZD looking to regain 0.7200, while the AUD consolidated above 0.7400. Some key Japanese data will be released in the local trading market today, including Employment, CPI and Industrial Production.

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