Daily Market Commentary 11th August 2021

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German and EU ZEW Economic Sentiment crashed overnight, which is considered an important metric for gauging future economic activity. The sporadic nature of economic activity and the impact of restrictions, with virus flare-ups, has driven uncertainty in the economy. In the US the NFIB Small Business Optimism survey also dipped below the key 100 mark measure. The bad news was countered by the prospect of yet another massive $trillion spendathon from the US Government. This boosted equities, as this ensures continued fiscal and monetary stimulus. The problem with this remedy is that the Government have record debt and will only extend this burden. The US Government debt has blown past 100%/GDP, which is a ‘red-line’ from which there is no return. This was before the latest deficit/debt bonanza Bill.

The EUR fell back to 1.1710, while the GBP drifted to 1.3830, as the US Dollar continues to dominate. Markets await key CPI and PPI data releases, which will certainly drive the market narrative. Inflation has been labelled as transitory and dismissed, by the Fed, but facts are stubborn. NZ Credit Card spending continued to rise, supported by asset prices and low interest rates. This could change on a dime, as the RBNZ is already beginning to recognise. The NZD traded below 0.7000, while the AUD was well below 0.7350, following a crash in Building Permits and the political lockdowns smashing through the economic recovery.

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