Inflation was hotter than expected in Europe, with German regional and national inflation, all rising. European manufacturing PMI data was in contraction mode in France and Germany, while green shoots are starting to appear in Italy and Spain. Chinese Manufacturing PMI shot up, to levels not seen since 2012, following the cessation of the destructive and oppressive ‘lock-downs’.US Manufacturing PMI was back into expansion mode, although ISM manufacturing PMI contradicted this, still showing a steep contraction. US economic data has been weak and inflation has been hotter in both Europe and the USA. The ECB and the Fed will continue to combat inflationary pressures, with higher interest rates. The EUR rose back to 1.0675, while the brief GBP revival appears to be over, falling back to 1.2020.
Commodity currencies were boosted by the strong manufacturing numbers out of China, with the AUD reaching 0.6750, while the NZD jumped up to trade around 0.6250. Australian manufacturing PMI was slightly better than expected and moving above the 50 mark, into expansion territory. Australian GDP growth was lower for Q4, but remained positive for the year. Rising interest rates will continue and bond yields are reflecting that. The US 10 year bond yields cruised back above 4%, while European yields are gaining upward momentum. Higher rates will curb inflation, but only if they liquidity taps are turned off, while economic expansion will pay a price..