Geopolitics and Markets Review 4/7/2022:

Commodities continue to drop on recession fears after an incredible rally in the first half of the year due to rising inflation. The tug of war between bullish and bearish price movements in commodities is going to bring large volatility to certain commodities as we could see stagflation due to rates not being raised fast enough to counter inflation but then must be lowered due to reduced economic growth in a recession. Wheat and US Natural Gas are currently looking like the chart of a penny stock pump and dump. Due to the LNG terminal fire, the more natural gas supply is remaining in the US which would have contributed to this move down, coupled with recession fears. However, once the US begins exports from the terminal again, surely the price will pull back slightly higher than current levels. The US has vowed to supply Europe with any deficit energy supply it needs after leaning away from Russian energy. If the US is successful in doing this, which is debatable due to the lack of sufficient facilities to export to Europe, then less supply will remain in the US, which is bullish for price. Overall, Natural Gas has the potential to be one of the most volatile assets on the market.

Back to inflation and Switzerland’s inflation announcement of 3.4% for June is the first-time inflation has topped 3% in Switzerland since 2008. Last month to try to combat inflation the Swiss National Bank increased interest rates from -0.75% to -0.25%. Only the ECB (European Central Bank) and BOJ (Bank of Japan) out of the eight major currency central banks are yet to raise interest rates. The ECB look set to do next time but the BOJ remains dovish, which means favouring low-interest rates.

The rush into the US dollar, $DXY, sees it top $105 as we start this week. This dollar strength has been coupled with other countries seeing major weakness in their currencies. The Japanese Yen is approaching a 24-year low against the dollar. Japanese inflation is only at 2.5%, mainly due to a lack of wage pressure which is currently been seen with strikes in the UK, with the recent rail strike being one of the biggest strikes seen in years.

More interest rate announcements this week as the Reserve Bank of Australia will give their next decision tomorrow. The current forecast is another 50-basis point rise, taking the overall interest rate to 1.35%. Australian inflation via the CPI is currently 5.1% from Q1 this year. More FX news later in the week as the US announces nonfarm payrolls and the unemployment rate. Canada also announces their unemployment rate. Will rising interest rates impact firms’ abilities to pay their debts, leading to a potential rise in the unemployment rate as companies let staff go?