US 12% inflation? A dangerous Federal Reserve

US equity markets had a mostly sideways, in the range of the past 3-4 days trading session.

There were some firm PMI numbers for both manufacturing and services, but these were small changes really.

What caught my eye, was that US Durable Goods tanked severely.

The US economy is still a mixed bag with mortgage rates now beginning to climb and a slowing of the property market becoming increasingly clear to everyone.

Inflation at 7.9% is already completely alarming, and while I have been thinking we would see 10%, it now appears more likely the US will see a 12% inflation read this year. It is unavoidable and there is nothing the Federal Reserve can do about it.

The scary risk for the US economy is if the Fed, having got it all wrong so far, decides it has to be super-aggressive as inflation accelerates from the current 7.9%.

Market sentiment on the day seems to be favouring a rally on the back of the new sanctions and ramped up military aid to Ukraine. Also President Biden has said the USA will respond directly if chemical weapons are used. Let’s hope no one in the Russian army, even under heavy fire resorts to such weaponry. It would now mean World War III.

While the tough talk is appropriate, the West may be painting itself into a corner of having to go into direct contact with Russian forces. In fact, the situation does not seem to be stabilising, but spiralling in the direction. Not a pleasant thing to write.

This, the risk so often talked about that must not be allowed to happen, that none of us think will actually happen, is growing in possibility. We should be mindful of this still remote possibility.

Oil had a down day but within the immediate up-trend. It will be volatile. My forecast remains $180, risk $250.

The Euro is likely to begin to deteriorate in value rather aggressively quite soon. The outlook is for a deepening recession across all of Europe.

US equity markets can turn down more sharply at any moment. Who would want to go home long for the weekend? Anything could happen.

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