Fundamentals finally caught up with the bond and equity markets. Non-Farm Payrolls blew away expectations last Friday, signalling further inflationary pressures, which were ignored by a technical rally in equities and bonds. The explosion of the Israeli war should also have been a massive red flag to markets, but this was largely ignored, until today.US Inflation readings, in the form of CPI and PPI, have been hotter than expected and bond yields have surged overnight. US equities have plummeted, as might have been expected, days ago. Conditions are ripe for further spikes in inflation, as energy prices surge. The once mighty US dollar surged, with the EUR tumbling to 1.0530, while the GBP plunged to 1.2170. UK GDP numbers turned positive in August, but the July contraction, was reviewed even deeper into the red, as was Industrial and Manufacturing Production.
The market correction and the rising reserve, hit commodity currencies hard, and the recent resurgence has been popped. The AUD crashed back towards 0.6300, while the NZD dropped to 0.5920. Australian inflation remains hot, according to the latest inflation reports, while NZ food inflation also remains stubbornly high. The latest dire economic news from Europe, shows recessionary economic conditions may serve to tame inflation, but the Fed is likely to raise interest rates once again.
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