Daily Market Commentary 10th May 2023

Markets were in a state of flux overnight, as they await key inflation data, due to be released tonight in the US and Europe. German inflation has remained stubbornly high, while US headline inflation , has continued to fall, but core inflation has been resilient. The ECB and Fed have been aggressive in the rate rises, to combat the persistent inflation, but ‘peak inflation’ may not have been reached, thus demanding further action. Markets are expecting a pause in US interest rate rises, so any resurgence in US inflation, will demand a re-assessment. The Bank crises in the US, is far from over, with regional banks under the spotlight. This process has the potential to put the frighteners on markets. The US Dollar rebounded, with the EUR trading 1.0920, while the Yen weakened to 135.20. The GBP remains strong, ahead of the key Bank of England rate decision, expected to raise rates once again.

The stronger reserve put the brakes on resurgent commodity currencies, with the NZD trading above 0.6300, while the AUD trades around 0.6750. The Labour Government delivered the first budget surplus in 15 years, with windfall receipts from commodity exports and a revenue bonanza from tax. The low Unemployment and rising wages has allowed the Government to reap massive tax revenue gains. It is ironic that much of the budget is built on commodity exports, lead by coal and iron ore, while thye implement a green agenda rejecting fossil fuels? Inflation in Europe and the US is key to markets today and tonight.