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Global markets are rattled: US inflation is ‘sticky’
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Global markets are rattled: US inflation is ‘sticky’

Investors are ‘spooked’ by US inflation which continues to go up, and the US dollar strengthens.

Welcome to our #159 weekly newsletter.

“For women taking control of their financial future”

-Jana Hlistova


From The Purse


In this week’s newsletter, we focus on the global markets and why they are ‘rattled’ by the recent US inflation data. Investors are suddenly feeling anxious, as the Fed is likely to continue raising interest rates in 2023, and perhaps more than they had anticipated.

You can review the news in brief so you stay on top of global financial, economic and investing trends.

I hope you enjoy this week’s newsletter.

Until next week,

Jana


Global markets are rattled: US inflation is ‘sticky’

Investors are ‘spooked’ by US inflation which continues to go up, and the US dollar strengthens.


Markets around the world were rattled, wrapping up the worst week in 2023, as the key US inflation gauge defied expectations of a slowdown in January, as reported by CNBC and The Financial Times.

According to the US Bureau of Economic Analysis, the personal consumption expenditures index increased 5.4% on-year in January versus an expected slowdown to 4.9%.

Moreover, core PCE inflation, the Federal Reserve’s preferred price gauge, increased to 4.7% on-year in January, from 4.6% in December.

It follows, that the US Federal Reserve may have to keep rates higher for longer in order to control inflation growth.

According to James Knightley, chief international economist at ING:

“…the data will ensure the ‘Fed mantra of ongoing hikes’ continues, with 25 basis point moves in March, May and June now ‘fully priced’ by markets”.

And Liz Ann Sonders, chief investment strategist at Charles Schwab has said that she does not believe that inflation can come down without either a downturn in the economy or more specifically the labour market (which continues to go up).

She also believes that a lot of speculation has kicked in and:

“...the market tends to move in a contrarian fashion when sentiment gets a little too frothy...”

The US dollar strengthened as investors moved their money to a ‘safe haven’ again and money flowed out of risk-on assets including the crypto market (which shed $58bn this week).

Michael Burry, the legendary investor, has already shared a grim prediction for 2023:

  • a) the US economy will go into a recession

  • b) and inflation will peak ‘more than once’

  • c) which will cause the Fed to pivot and cut interest rates

  • d) forcing the government to stimulate the economy in order to help struggling households

  • e) meaning: “we are going to see a rehearsal of what happened after March 2020”.

As the US holds the world’s reserve currency and financial markets are so interconnected, this inflationary impact will continue to ripple through the entire financial system.

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