A not so transitory inflation

The Chairman of the US Federal Reserve reviewed his position yesterday afternoon and now thinks it is time to stop taking inflation as a temporary event in the US. Powell said the Fed had also been concerned by the performance of the job market with a near record level of unfilled job openings, and bigger wage increases. The risks of more persistent inflation have increased and as a result, he believes it is appropriate to accelerate the reduction of the Fed’s asset purchases. This move therefore initiate the prospect of a rate hike by the monetary institution. The EUR/USD exchange rate fell to 1.1236 after news and rebounded to 1.1344 this morning. In terms of interest rates, the US 10-year at 1.47% this morning. S&P 500 fell to 4’567, Nasdaq to 15’537, Dow Jones to 34’483.

The Turkish Lira dropped record low yesterday after US news and lost again 4.7% of its value against the USD. Over a year, the lira has lost more than 40%. In response, the Turkish president has again denied any discussions on the level of key rates. Inflation is around 20% and may well exceed this level in November. The figure will be announced on Friday.

Swiss GDP grew by 1.7% in the third quarter (versus 2% expected and 1.8% in the second quarter). Over a year, growth hit 4.1%, a much higher rate than expected (3.2%), which reflects upward direction compared to previous quarters. Swiss index today at 12’205.

Consumption participant of growth in the 3^rd quarter. By sector, pharmaceuticals and chemicals grew at a constant pace, followed by manufacturing, while activity in financial services sector slowed. Hospitality sector is recovering slowly, while activity in arts, entertainment and recreation is picking up strongly. After two downtrends, the Swiss economy is now above its pre-pandemic level.

Despite the strong appreciation of the Swiss franc, the Swiss National Bank remains inactive on this matter. According to SNB’s Governing Board, the bank will intervene if necessary, but does not indicate at which level. The EUR/CHF fell to 1.0411.

Consumer prices rose to record high 4.9% in November, compared with a year-on-year increase of 4.1% in October in Eurozone. Main contributors are energy prices and supply chain issues. Last week ECB Vice President Luis de Guindos said that the central bank still plans to end its emergency bond purchases program in March.

Meanwhile in China weak demand, falling employment and rising prices put pressure on manufacturers in November. The Markit PMI fell to 49.9 in November from 50.6 the previous month. The world’s second largest economy, which has made an impressive recovery from the coronavirus pandemic, is now struggling with a slowdown in its manufacturing sector, debt problems in the housing and the resurgence of the coronavirus epidemic.

Oil prices declined to its 3 months lowest yesterday. The U.S. will proceed with its plan to release 50 million barrels of oil from its strategic reserves — and may even sell more should the need arise, said US State Department senior advisor. Oil market still unstable, prices now: Brent 71.94 and Crude 68.59.