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Synopsis: Brent Johnson, CEO of Santiago Capital, is joined by Steven Van Metre of Steven Van Metre Financial to discuss the most pressing issues on the macro landscape. After exploring whether quantitative easing (QE) and low rates are inflationary or deflationary, Johnson and Van Metre take a deep dive into the plumbing of the Treasury market and specifically the operations of the Fed’s FOMC. Van Metre explains why he believes the Fed’s policies have actually caused banks to tighten their lending standards rather than loosen them as the Fed intended. The pair then take a look at swap lines and the Eurodollar funding market as well as the effect a credit contraction would have on the U.S. dollar. Lastly, Van Metre talks about his Real Vision journey and how the knowledge he’s gained has helped him as a financial advisor
European markets down as UK inflation hit All time High since nine years!
European markets opened lower on Wednesday morning as the UK announced it saw the largest ever month-on-month inflation increase since records began in 1997.
The Consumer Price Index (CPI) measure of inflation surged to 3.2% in August, up from 2% in July, which was the Bank of England’s target.
This jump was partly because the UK government’s ‘Eat Out to Help Out’ scheme last August had pushed prices down significantly. But it is also because of increases in the price of commodities like food, petrol and car, that look set to stick around.
The Bank of England expects inflation to hit 4% by the end of the year, and some investors are anticipating a sharper increase in interest rates next year.
In London, the FTSE 100 (^FTSE) was 0.1% lower, as was the French CAC (^FCHI). The DAX (^GDAXI) in Frankfurt was almost flat.
“Already prices paid by consumers are rising well above the target rate but it’s also the 5.9% increase in the price of goods bought and sold by UK manufacturers which will be unpalatable food for thought for policy makers at the Bank of England,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
“For months members of the monetary policy committee have been reading from the same menu, underlining that higher prices should be transitory. But with producer price inflation soaring, shipping costs showing little sign of cooling, commodity prices heating up, and vacancies tipping one million, there is a growing chance that one mess of a hot dinner could be arriving on their plates.”
US futures were trading lower. Even though data showed inflation in the country came down from a 13-year high, prices remain higher than before the pandemic.
Consumer prices rose 5.3% in the year ended in August, slightly below the 5.4% increase in June and July.
“Traders are still worried that despite the slow inflation reading and a weak set of US NFP data, the Fed is still likely to start the tapering this year,” said Naeem Aslam, chief market analyst at Ava Trade.
“It is still possible that next week we may get some time line from the Fed in relation to their tapering of the loose monetary policy.”
Meanwhile Sebastien Galy, senior macro strategist at Nordea Asset Management, said: "The US CPI print comforted somewhat the view that inflation was transitory, but within it we can detect a complex picture of a consumer and companies reacting to an overshoot in prices and the delta variant."
Over in Asia, Japan's Nikkei (^N225) closed 0.5% lower. In Hong Kong, the Hang Seng (^HSI) fell 1.6% as casino stocks listed in the city plunged amid fears over tighter regulations. The Shanghai Composite (000001.SS) dipped 0.2% as data showed China’s retail sales growing at a much lower pace than expected in August.
"The slowdown in China has roots that are unclear, surely the clampdown on real estate and debt are an issue, but the underlying reason may be a recognition that the medium-term and long-term prospect for growth are once again reverting to their long-term trend as less productive services grow in the economy," said Galy.