- Risk stays off: CHF & JPY strong, AUD & NZD weak
- How not to do it: Lira weakens further on CBRT action
- CBRT intervenes in FX markets
- ECBs Muller: ECB is prepared to tighten faster if inflation stays north of 2%
- ECB's Villeroy: Probably relatively close to the inflation peak
- German November PPI +0.8% vs 3.8% m/m prior
- German December IFO Business Climate 94.7 vs 96.5 prior
- Germany economy Minister on Nord Stream 2: No gas can flow in January
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- UK November retail sales +1.4% vs +0.8% m/m prior
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- November 2021 Eurozone HICP Final +0.4% vs +0.8% m/m prior
- BoE Pill: When asked about more hikes to come, says he 'thinks that is true'
- GBPUSD: Expect intraday buyers at 1.32500
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- BoJ's Kuroda: will ease monetary policy without hesitation as needed
- South African disease expert Groome: COVID deaths increasing, but from low base
- Markets lean risk off as central bank actions are considered
- FTSE - +0.13%
- Dax -0.88 %
- CAC - 1.08%
- Gold - +0.67%
- Silver - 0.76%
Markets started risk off as the swathe of central bank action this week was digested. As the dust settles there is a more hawkish tilt in general. The Fed signals 3 hikes, the BoE hikes as the first G7 bank, and the ECB signals the end of PEPP for March and sends outs signals about the anticipation of rising inflation. All of this shows that central banks are starting to pay more heed to inflation than Omicron risks.
The Eurozone had a steady stream of data all confirming the ECB’s projection on higher inflation and lower growth. German IFO business data missed across the board as pessimism amongst German businesses started to grow. Germany's PPI y/y reading was the highest increase compared to the corresponding month since November 1951. The main culprit for the rise, according to Destatis, was energy prices. This chines with the ECB yesterday as they increased their inflation forecasts. The Bundesbank also revised their inflation forecasts up to 3.6% 9vs 1.8% in June) and 2022 GDP growth down o 4.2% (from 5.2% in June).
Fear of inflation drives inflation
The one thing to be aware of is that the fear of inflation can drive inflation. This is one thing the Bank of England are really trying to address via their rate hike. They see wages and cost pressures increasing and realise that results in higher prices. I know that’s a trueism, but If that enters the system then it finds its way through the whole cycle. The fear or anticipation of that just drives prices even higher. If future prices will be higher, then why delay purchases? The whole thing becomes a vicious circle that is very hard to escape. The BoE looks sensible to try and head that off early. At least wages should be stopped from rising so steeply off the back of the announcement. Meanwhile the CBRT cut rates as inflation soars. It's sad to see as USDTRY heads to the moon on TRY weakness.
It is quad witching today, so could be a choppy close. Gold continues post Fed to soar and platinum has some of the best seasonals around, so could be a great trade to kick off 2022.
Take care everyone. Been a pleasure to have been with you all again.