Market Update

The highlight of this week was the staggering 6.2% US CPI inflation announcement on Wednesday (10 November 2021).
The last time US inflation soared to such levels was in November 1990. For context, Margaret Thatcher was leading the UK, and George Bush senior was the US President. Back then, the substantial inflation was triggered by a spike in oil prices due to Iraq's invasion of Kuwait.
Similarly, the recent oil price surge, post its dramatic fall in April 2020 due to the pandemic, coupled with supply-chain hitches, have primarily driven the present inflationary trend. Consequently, we have been emphasizing in our past commentaries that upcoming inflation figures would be jolting!
While we anticipate inflation might continue its upward trajectory in the near term, we remain firm in our belief that this inflationary surge is temporary and that an uptick in interest rates isn't the solution.
As the impact of the oil price surge starts to diminish in year-on-year inflation calculations, and as we progress past the pandemic-induced shutdowns and disruptions, we expect supply-chain issues to subside. It wouldn't be a stretch to foresee discussions around potential disinflation or even deflation by this time next year. This is why we believe that hiking interest rates now could be a strategic misstep.
Regrettably, ongoing inflationary pressures are poised to dampen consumer confidence and discretionary spending (considering consumers form a significant chunk of the global economy – for instance, in the UK, they constitute approximately 60% of the economy). This could potentially decelerate the economic rebound.
As we look to the upcoming week, several pivotal data releases await, including the Empire State manufacturing index, UK job stats (comprising unemployment rate and weekly wages), CPI figures from the UK and Japan, retail sales data from the US, UK, and China, industrial production stats from the US and China, US housing metrics, and Q3 GDP numbers from the Eurozone and Japan.