US Equities crashed again Friday, to close out an extremely volatile and potentially destructive week, on the markets. The DOW lost almost 1,000 points, but the NASDAQ lost more than 4%, bring the April losses to more than 12%! The US GDP number from Thursday, shocked markets, with expectations of a reduced 1+% of growth, materialising into a contraction of more than 1.4%. This is a big reality check for markets, as the US trade deficit balloons with a huge surge in imports, while consumption collapses. Rampant inflation was confirmed, with the Federal Reserves own preferred measure (PCE) showing a blowout, rising to 6.6%! Rising inflation is driving interest rates sharply upwards forcing the Fed to raise interest rates again this coming week. This will continue to hit the consumer and disposable income, while smashing growth prospects and leading to the dreaded ‘Stagflation’.
European markets are in even worse shape, as the suicidal Russian sanctions, take a devastating toll on their economies. The full-blown energy crises is set to escalate further, while a food crises is building, throwing politicians into disarray as the people become ever more unsettled. Cost-of-living is a crises across Europe and input costs for manufacturing has the potential to derail industry. If the Ukraine crises is not solved, very quickly, it could lead to a destructive and deep recession in Europe. The EUR has fallen to 1.0540, while the GBP has traded down to 1.2550, as they sabre rattle further. The European powers are being provoked and needled by the US and UK, where they should be de-escalating, to avoid a calamitous outcome.
US Bond Yields resumed their upward momentum, ahead of the FOMC meeting this coming week, which is expected to result in a further rate rise. It is now a question of how much? The Bank of England is set to continue to raise rates, chasing the inflation dragon, while the RBA is also likely to break with pre-election tradition and raise rates. Australian inflation numbers surged from 3.5%pa, to 5.1%, confirming they are not immune from the global inflationary crises. The AUD has collapsed to 0.7050, while the NZD has crashed to 0.6450, collateral damage of the reserve currency.
The coming week will focus on Central Bank policy, lead by the Federal Reserve and followed by the Bank of England and the RBA. The week will also be highlighted by inflation data, growth and the US Non Farm Payroll number, set to be released this coming Friday.