Markets closed a tumultuous week of trading on Friday, lower once again. Non Farm Payrolls was yet another big miss for the US economy, with only 210,000 (550,000 expected) jobs created, in the economy, in November. The headline employment rate fell back to 4.2%, but this is objectively deceptive, as there are millions of people not even actively looking for work, thus not included in the numbers. The US economy is in dire straights, with inflation running at 6.2% (tipped to rise closer to 7% in the statistics to be released this coming week), while GDP growth is plummeting. The energy crises and supply chain catastrophe, only add to the structural dislocation in the labour markets, all adding up to ‘stagflation’. This conflagration of events has lead to the dislocation of the economy and fiscal/monetary policy is only aggravating the situation.
The Federal Reserve has already abandoned the false narrative, they have peddled all year, that inflation was ‘transitory’. The Fed Chairman Powell, has committed to scaling up the ‘tapering’ of QE, meaning tightening monetary policy with a view to raising interest rates. This is a sign of the urgency, that inflation is presenting to the US and the World. This has contributed to the run on equities, with the unlimited flow and access to capital, coming to an end. US bond yields did not reflect the change in monetary policy, but instead fell from recent rallies. This is a direct result of the fears over the economic impact of the rejuvenated virus and various mutations. This pushed the US Dollar lower, with the EUR rising to 1.1300, while the Yen hit 112.70.
The lack of demand in the global economy, off-set the weaker reserve and directly impacted commodity currencies. The AUD crashed to 0.7000, while the NZD fell to 0.6750. The markets will continue to watch inflation data and Central Bank policy. The RBA and the Bank of Canada both meet this coming week, but will resist any shifts in monetary policy, as they are still suffering the 2021 devastation from political lockdowns and restrictions.