Overnight, US inflation hit 7.9% – a figure not seen since 1982 – driven by rising fuel, food and core commodity prices that are all expected to put pressure on the Federal Reserve to raise interest rates when it meets next week.
The only way is up
These figures pre-date the war in Ukraine, and can only be expected to trend in one direction as the Russian invasion enters its third week and the impact of sanctions on Russia start to bite across co-dependent economies in the West.
From January to February alone, US inflation rose 0.8%, one of the largest monthly jumps in more than a decade.
The inflation fears reverberated around the markets yesterday, with US stocks closing lower – the Dow Jones Industrial Average closed down 0.3%, the S&P 500 index closed down 0.4% and the Nasdaq Composite Index fell by about 1% – and losses felt on European markets too.
Russia edges ever closer to default
Ratings agencies are warning that a Russian default on its national debt is on the cards, with Fitch slashing the country’s credit rating to a C – junk territory.
The Russian government has $117 million in bond debts due on 16th March, and analysts are concerned that a payment in roubles could trigger a credit default swap. An additional $65 million is due next week.
What pandemic?
The European Central Bank kicked off a steep wind-down of pandemic-related monetary stimulus – clearly more spooked by record inflation than the flat economies of the bygone days of COVID-19.
Back home, Reserve Bank governor Philip Lowe was preparing the ground for an Australian interest rate hike. “It would be prudent to plan for an increase,” he said.
The S&P/ASX200 was up this morning, gaining 18.10 points or 0.25% to 7,148.90 as materials and energy stocks bounced back.
Over the last five days, the index has inched back to 0.54% but is down 3.97% for the year to date.
The new normal
Global oil prices have settled from recent highs after OPEC agreed to lift production, but concern over Russian crude supplies continue to shake things up. Brent crude was sitting at $109.33 a barrel on Thursday.
Australian pump prices continue to hover around $2 per litre – a shock last week, but now a common sight at pumps around Australia. Welcome to the new normal.
Other commodities
Commodities were mixed, with aluminium a big winner, jumping to a four-year high as a result of sanctions against Russia, which supplies 6% of the world’s aluminium.
Copper rose by 1.3% but lead and zinc both fell 1.9%.
As expected, the gold futures price rose US$12.20 or 0.6% to US$2,000.40 an ounce. Spot gold was trading near US$1,996 an ounce at close of play in the US on Thursday.
Iron ore dropped US$1.20 or 0.8% to US$156.35 a tonne.
Bitcoin tumbled more than 5% to US$39,535.