Suddenly, financial markets have become highly volatile, with the escalation of Middle East hostilities and last week’s increased US inflation reading generating tension and uncertainty.Oil prices, already above $US90 a barrel, could go higher and add to the challenges faced by economic managers, depending on how Israel responds to the weekend barrage of drones and missiles.The US CPI numbers, which saw the inflation rate edging up, sent shockwaves through markets.
It appears the impact of the Biden administration’s very loose fiscal policies in negating the effects of the Fed’s tight monetary policies and keeping US inflation rates at levels the Fed is uncomfortable with might have been underestimated.The “high for longer” scenario that has now taken hold, and the US bond market’s response to the inflation data, means that the interest rate differentials between the US and other major – and minor – economies are widening.
The European Central Bank, for instance, has conditioned its markets to expect several rate cuts this year. Now, however, the BoJ is being confronted with an extremely volatile and weakening currency, which generates economic instabilities and capital outflows.
Financial Markets Middle East Tensions US Inflation Oil Prices Israel Attacks US CPI Numbers Stock Market Bond Yields US Dollar Major Trading Partners Currencies
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