Wednesday, 10 February 2022, US Government released CPI data at 0,6% it makes US inflation continuously incline to 7,5% the fattest pace in four decades. Market responses are different.
US10Y is already overheating, 2% touched last week, meanwhile US30Y also rose until 2,3%.It can be good and bad. As bond yield is a leading indicator for strong currency or weak currency there is a possibility of inverted bond yield between US10Y and US30Y. When it happens it goes into recession.
The Fed needs to do extra work to control it. 14 February 2022, the Fed will hold a closed board meeting due high pace inflation. What does the market expect? Market expects an early hike of interest to ease inflation. This is a big risk to jump to early judgment to tighten policy. There are two possibilities, first inflation going down as expected to 2% and the transition going smooth, or the economy will stop recovering because the inflation itself is impacted from supply chain and commodity price issues.
What happens if The Fed raises interest before 16 March 2022? The Fed looks on panic. It will strengthen US $ for a moment but come with trust issues from investors. Highlight market in the future, inflation level, GDP level, Commodity price, and supply chain issue. Every change of it will impact a strong or weak currency. Next Week, the US$ will be strong against most currencies, as price in market for rate hike.
Volatile market is ahead, winter is not yet finished, and war is coming.
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