Daily Market Commentary 12th July 2023

Global equities continue to rally, wiping out much of last week’s losses, heading into the release of important US inflation data. German inflation reversed course, spiking back upwards to 6.4%, heading in the wrong direction. The important ZEW Economic Sentiment report in Germany also was steeply negative, reflecting the dire situation that the German economy finds itself in. The energy crises is de-industrialisation the engine-room of Europe and manufacturing is in a state of virtual collapse, under co-Green Government and their policies. The reversal in the inflation direction is not a great surprise but remains a great concern, and only endorses the ECB’s hawkist monetary policy. All eyes now turn to the US CPI number. The expectations are for continued falls, but it is the key ‘Core Inflation’ that will be watched extremely closely. This has remained stubbornly high, despite sharp declines in headline inflation, thus it becomes the focal point in tonight’s numbers. The EUR is flirting with 1.1000, while the GBP surged to 1.2900, following tighter than expected, and record high wage growth.

The recessionary pressures in Europe have not assisted the demand for commodities and thus the currencies are struggling. The AUD trades around 0.6650, while the NZD fell back below 0.6200, ahead of the key RBNZ monetary policy decision. The RBNZ is expected to hit the pause button today, not because of the lack of inflationary pressures, but because of the state of the economy. They should be confronting the problem and raising rates to stamp out the cause of the consumer misery, inflation. The economy is in a steep decline, demand is plummeting, while all the economic data is pointing to an extended recession. The actions of the Fed and the RBA have opened the window to a rate freeze, but inflation will continue to demand further rate rises, in the very near future.