Daily Market Commentary 7th April 2022

‘Houston, we’ve had a problem.’ It is finally being called by the Federal Reserve Board members. They have come very late to the inflation party and this will mean even more severe monetary action must be taken to attack the inflation crises, spiralling out-of-control around the Western economies. Federal Reserve minutes have finally admitted the need for a sharp and aggressive reduction in the size of the Federal Reserve’s balance sheet. The suggestion is up to USD$100 Billion/month reduction in the balance sheet, which is a massive switch from aggressive QE, to slamming on the brakes and smashing it into reverse. The fear of hyper-inflation is real and realised by the Fed, at long last. US 10 years Bond Yields surged to 2.65%, while markets trembled, as the prospect of a deep recession looms. The EUR continued to crash under the pressure of a surging US Dollar, falling to 1.0880, while the GBP plunged to 1.3050.

These inflationary pressures are global and are only becoming more real for the Europeans, as their energy crises is about to spread to a general economic crises. The Russian sanctions may force a recession in Russia, but they are devastating the European economies. The energy crises has been accentuated by the dependence on Russian energy, while domestic production has collapsed, due to destructive green energy policies. The food crises is about to engulf not only Europe, but much of the world, as agricultural prices have arched upwards, due to Russian sanctions. This could result in a extended and deep European recession.

Commodity currencies have been beneficiaries of soaring commodity prices, but the resurgent reserve has neutralised any gains. The AUD crashed back to a post-RBA reality and traded 0.7500, while the NZD looks to test 0.6900, on the downside. Surging interest rates, rampant inflation and supply chain break-downs are not a recipe for economic success.