September ends, CBs take on inflation, US Data, bitcoin rallies

US investors are glad to see September end.  US stocks ended mostly on a down note as lawmakers try to avoid a government shutdown and deliver on the USD 1 trillion infrastructure bill, all while an energy crisis brews abroad.  China’s power crisis reportedly led to swift action by the government in securing supplies at any cost, which will just drive up energy costs for Europeans.  Supply chain issues have widely been weighing on business, but an energy spike could prove to be very disruptive to the short-term outlook.

Central banks

The Czech National Bank stunned the FX world with its biggest rate hike since 1997.  Emerging and developed nations are in an aggressive fight against inflation and will likely lead to heftier tightening cycles over the coming months.

The Czech Republic lifted the repurchase rate by 75 basis points to 1.50%, well above the analysts’ forecast of a half-point raise.  The koruna surged over 0.8% against both the euro and dollar.  Earlier in the month, Czech inflation hit a 13-year.  Since the last inflation report, no signs emerged that global supply bottlenecks are improving, so it shouldn’t come as that much of a surprise the CNB stepped up its tightening cycle.

Czech finance minister Schillerova was critical of the massive rate hike, noting it could strangle the economy.

Inflationary pressures could remain in place throughout the winter and that will likely have money markets steadily pricing in more hawkish turns by the Fed and BOE.  The definition of how long “transitory” means will likely change from a brief period to an extended but still temporary period of time.  Central banks all around the world are battling inflation and the emerging and developed world will likely deliver rate hikes a lot sooner than anyone was anticipating over a month ago.

Another surprising development in the FX world was Denmark’s battle against currency appreciation.  The Denmark central bank cut the benchmark rate from -0.50% to -0.60%, a sign currency intervention wasn’t cutting it.

US Data

Today’s round of US data was very noisy and unlikely to change any expectations on the direction of the labor market recovery, pricing pressures, and supply chain worries.  Jobless claims climbed higher for a third week in a row, raising doubts that ending of unemployment benefits would trigger a rapid improvement in employers filling up current job vacancies.  The increase in jobless claims was isolated across a handful of states, some of which were impacted by chip shortages that have led to layoffs in the automobile industry.

Initial jobless claims is well above pre-COVID levels and still can’t get that first 200,000 print.  Claims rose to 362,000, higher than the 330,000 estimate and prior reading of 351,000.  Continuing claims dropped from a revised 2.82 million to 2.80 million.

The eye-catching number was the 6.2 million drop in people participating in all unemployment insurance programs.  Now, only 5.02 million Americans are participating in UI benefits, which could mean millions of Americans will be incentivized to return to the workforce.

The MNI Chicago business barometer report showed softness in activity, as backlogs fell to the lowest levels since March. Business activity is now at the lowest level since February, as employment improved, while production was slightly lower.  The report highlights the majority have had to modify their supply chain strategy.

Bitcoin gains as Wall Street struggles

Bitcoin is rallying as Wall Street struggles grapples over the drama in Washington DC, an energy crisis brews, and mounting fears that the global economic recovery could be at risk.   A flight to safety is pumping bitcoin higher, but this will likely not be the catalyst to have it break out of its consolidation phase.  The more bitcoin distances itself from the $40,000 level, the more excited the bulls will get.  Bitcoin will likely struggle to reach the USD 48,000 level until the regulatory path is clearer.

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