Forget Politics, a Tectonic Shift Has Hit the Markets
While everyone is focusing on politics, a major development has occurred in the financial markets.
Inflation has arrived.
Inflation expectations have turned back upwards and broken to new multi-year highs.
If this chart were that of a stock, this would be a raging “buy” signal.
This isn’t just in the US either.
Inflation in the Eurozone rose sharply in December, the European Commission has confirmed, adding further to pressure on the European Central Bank (ECB) to begin withdrawing its historically expansive monetary policy support on Thursday.
Consumer prices across the bloc increased by 1.1 per cent, a steep rise from the 0.6 per cent growth recorded the month before, according to Eurostat.
Inflation has jumped to the highest rate for two-and-a-half years, hitting 1.6% as the pound’s sharp drop since the Brexit vote continues to push up costs in the UK.
Official figures for December showed air fares, food prices and fuel all helped to drive the rise from 1.2% in November. The December rate, as measured on the consumer prices index (CPI), was the highest since July 2014 and higher than forecasts for 1.4% in a Reuters poll of economists.
These stories are telling us that a tectonic shift has occurred in the markets. An inflationary storm is coming. After all Central Banks have pumped $14 trillion into the financial system.
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Chief Market Strategist
Phoenix Capital Research