FOREIGN EXCHANGE

INSIGHTS, TRENDS AND CASE STUDIES

A volatile night for rates markets with short-end rates shooting up driven by hawkish signals from yesterday’s Aussie Q3 CPI and Bank of Canada meeting, but longer-end rates tumbling after the UK budget showed a sharply lower debt profile.

US and European equities have ended the day in positive territory, supported by solid earnings reports and better than expected US data releases.

Inflation fears continued to build amid the backdrop of a strong Q3 earnings season which is showing firms have some pricing power to pass on higher transitory inflation

Friday’s main economic events, namely the ‘flash’ PMIs, tell us that there is little reason to fear stagnation, for the time being at least, given still elevated levels for all readings across Europe and the US.

The biggest moves across Global Markets have been seen in the US rates market, where break-even inflation rates have jumped by a full 10 basis points at both 5 and 10 years.

The S&P 500 has extended its winning streak to a sixth day with mixed earnings and a subdued Fed Beige report not enough to derail the positive vibes

If the market is rethinking how soon the Fed might lift rates, there was nothing from incoming Fed speakers overnight to support this view.

Although the US is less exposed to the energy crunch, supply bottle necks are still affecting its economy, particularly in sectors there is a shortage of workers, raw materials, and chips.

Inflation fears are clearly lifting, with the latest driven by the rise in energy prices.

The sun has been shining on risk sentiment, commodity prices and commodity currencies overnight

With markets having aggressively pushed Fed pricing into 2022, it is likely there is some thought that such a tightening will weigh on demand earlier.

The ‘Quit Rate’ is the highest on record, reflective of the ease which workers are switching jobs, in part at least for better pay or conditions elsewhere.

The rise in energy prices is fuelling concerns that the transitory lift in inflation seen in the wake of the pandemic may prove to be longer lasting.

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