The energy crisis isn't going to help with ongoing concerns surrounding supply and capacity constraints in the region
The German 10-year breakeven inflation rate has risen to 1.72%, its highest since May 2013, and we're seeing UK 10-year breakeven inflation rate also topping the 4% mark for the first time since 2008 today.
This all comes as we are seeing energy prices in Europe soar to new heights and there are little signs of the situation turning around at this stage.
It is shaping up to be one of those days where all of this is leading to higher bond yields and bolstering yen pairs as well as the dollar. But if things stretch too far, expect the drag on equities to turn into a broader flight to safety later in the day.
Commodity currencies are the worst-hit by all this and are put in a lose-lose situation no matter how things play out on the day. The loonie perhaps less so as losses are likely limited by higher and surging oil prices with WTI seen up 0.7% to $79.45 now.
There aren't going to be any easy answers in dealing with this as central banks don't have the right tools to deal with the root of the problems. BOE governor Bailey put it quite nicely last week with this remark:
Monetary policy cannot solve supply side shocks. Monetary policy cannot produce computer chips, it cannot produce wind, it cannot produce truck drivers.
The onus is upon governments to ease the burden for consumers but they themselves are caught in a bind. The energy crisis that is unfolding is arguably just getting started and we're going to start to see that translate to credit/corporate risks potentially and that will entail a political crisis soon after as well.
