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Market News Inflation soars, the dollar breaks through the 95 mark, and investment banks warn that the next crisis is already in sight

Inflation soars, the dollar breaks through the 95 mark, and investment banks warn that the next crisis is already in sight

In the European market on Thursday (November 11), benefiting from the surge in US Treasury yields and risk aversion, the US dollar index broke the 95 mark. Data released by the US on Wednesday showed that US consumer inflation rose to the highest level in more than 30 years. , The benchmark 10-year treasury bond yield closed at more than 1.5%. Nomura Holdings warned that as energy prices soared to push inflation rates in major economies to reach decades of highs and caught central bankers by surprise, food prices could become the next source of pressure.

Eden
2021-11-11
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In the European market on Thursday (November 11), benefiting from the surge in US Treasury yields and risk aversion, the US dollar index broke the 95 mark. Data released by the US on Wednesday showed that US consumer inflation rose to the highest level in more than 30 years. , The benchmark 10-year treasury bond yield closed at more than 1.5%. Nomura Holdings said that as energy prices soared to push the inflation rate of major economies to hit decades of highs and caught central bankers by surprise, food prices may become the next source of pressure.



Inflation is soaring, the Fed is expected to raise interest rates in advance, and the US dollar hits the 95 mark


On Wednesday, data released by the United States showed that consumer inflation in the United States rose to its highest level in more than 30 years, and the U.S. dollar benefited from soaring U.S. Treasury yields and risk aversion. The U.S. dollar index rose nearly 1%, and the benchmark 10-year Treasury bond yield closed at more than 1.5%.

The US Bureau of Labor Statistics reported on Wednesday that the Consumer Price Index (CPI) rose 6.2% year-on-year in October and 5.4% in September, the highest level since 1990. In addition, the core CPI climbed from 4% to 4.6%. The yield on the benchmark 10-year US Treasury note rose nearly 8%, boosting the dollar. The Fed watch Tool of the Chicago Mercantile Exchange Group (CME Group) currently shows that the market currently expects the Fed to raise interest rates more than 70% by June 2022.

Nomura: The seeds of the next inflation crisis may have been planted in food prices


Nomura analysts such as Rob Subbaraman said in a research report: “Food is more weighted in CPI than energy, especially in emerging market economies. The seeds of the next crisis may have been planted in food prices.” They Added that high energy prices may have a strong secondary effect on food.

Rising energy costs, supply chain bottlenecks, and post-blockade demand have all contributed to the acceleration of global inflation. Last month, consumer prices in the United States recorded the fastest year-on-year increase since 1990, and inflation indicators in countries around the world have also soared. Nomura analysts said that even before the new crown epidemic, there were fundamental supply and demand factors that indicated that food prices have soared, and that the epidemic and rising energy costs have exacerbated this dynamic.


(The level of inflation has risen sharply)

Under the assumption that global food prices will rise by 15% by the end of 2022, analysts believe that rising inflation expectations will push the central bank toward “earlier and faster policy tightening”.

Another potential impact will come from the "inelastic" nature of food consumption, which may reduce the actual disposable income that households can use for other goods and services. The latter will put downward pressure on inflation, requiring the central bank to measure the impact of opposing forces.

The report shows that for the European Central Bank, a 15% food price shock may push the overall CPI to rise above 4% by the end of 2022, while the current consensus forecast is less than 2%. Given that the European Central Bank may have ended its emergency bond purchase plan for the epidemic by then, the market may be more concerned about how fast interest rates will be raised.

Food prices may not be a problem for the Bank of England and the Federal Reserve, as they have a smaller weight in the CPI basket of these two countries. Even so, a 15% increase in food prices may make the overall CPI further 1.5 percentage points higher than current forecasts in the United States and the United Kingdom.

Analysts said, "The energy price spikes we have seen are now fully reflected in inflation expectations. However, the possible spillover effects of such energy price spikes on food prices are rarely mentioned, and this spillover effect may lead to inflation next year. A major accident may force the central bank to raise its forecast. "

In the European market on Thursday (November 11), the US dollar index continued its gains on Wednesday, breaking through the 95 mark, setting a new high since the end of July. Due to the Veterans Day holiday on Thursday, the US bond market will be closed, but Wall Street will be open as usual. After Wednesday’s frantic action, the market may remain relatively calm amidst light trading.


(U.S. dollar index daily chart)

GMT+8 at 16:18 on November 11, the US dollar index was at 95.06/07

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