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  • richard evans

Inflation? It's fine, just don't eat or drive

Good morning

US and EU markets were positive yesterday but Asian markets failed to follow suit and ended broadly lower. Oil prices tick higher, with brent crude above $85 and wti just above $84.00. To add to ongoing price rises and inflation worries, prices of wheat hit record highs as crops suffer due to extreme weather conditions.

In October 1999 a book was published called ‘Dow 36,000’ which predicted that the Dow would move to that level by around 2004. Back then it was around 9-10,000. Yesterday, a few years later than predicted, the Dow Jones Industrial Average traded above 36,000 for the first time. It probably would have come sooner had it not been for the Sept 11th terror attacks and the global financial crisis that followed a few years later.

The UK/France fishing row continues although reports suggest France will postpone sanctions until after a meeting between the two sides this Thursday. GBP remains subdued with GBPUSD at 1.3650, certainly struggling against EUR with EURGBP at 0.8500 (GBPEUR 1.1765) despite the likelihood of a BoE rate rise on Thursday. Mind you this potential rate rise has been priced in for a while now, it is possible there are some thinking it could be pushed back a month or so which perhaps explains why GBP is looking a little underpowered. EUR finds a bit of support after last weeks ECB meeting, EURUSD sits at 1.1605.

AUD is a little lower after RBA made it clear their forecasts do not warrant an increase in interest rates in 2022, contrary to what they regard as excessive market pricing. RBA also confirmed they are stopping the yield curve control for the 2024 government bond after stepping back from bond purchases last week. AUDUSD 0.7470, AUDNZD 1.0415.

A fairly light calendar today may mean focus turns to Fed rate meeting tomorrow, where it is widely expected they will announce a start to tapering asset purchases. One would imagine this is priced in and therefore market impact should be limited, however we have seen interest in short dated upside USD trades just in case.

Anyone filling up a car with petrol recently will probably have seen petrol up around £1.50/litre. Quite frightening really. We recently got a small runabout for my son to learn to drive in, a Vauxhall corsa which is about ten years old. It had just under a quarter of a tank in it, so I filled it up the other day. It cost £66.50. I was quite alarmed and have since avoided filling up the larger of our cars, I’m expecting that to cost £120 or so. Its getting expensive, that’s for sure. I reckon Elon Musk is driving the price of oil up to make his cars look attractive. I had a quick look at lease prices and while electric cars are more expensive by lets say £100/month than a comparable petrol car, with no petrol costs each month there is a good chance it will actually work out cheaper.

- 09.00 EU markit manufacturing PMI

- 11.20 ECBs Elderson speaks

- 12.30 CAD building permits

- 21.00 NZ RBNZ financial stability report

- 22.45 NZ unemployment

- 23.00 RBNZs Orr speaks

- 23.00 AUS commonwealth bank services PMI

- 01.30 AUS building permits

- 02.45 China caixin services PMI

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