Daily Market Commentary 12th May 2021

The Australian Budget was brought down overnight and promised an ocean of red for the next ten years, resulting in a debt of AUD$1 Trillion! The second ‘pandemic budget’ was delivered with a Federal Election in mind and undercut the opposition Labor Party, by massive social structural spending, under cover of the pandemic. Fiscal Conservatism is a relic from a bygone era and Keynesian economics has been extended to cover good and bad times. Deficits are massive and permanent. Debt is ignored and justified by the low interest rates and the global economic crises. Conservative Governments have learned that debt and deficit are the election honey pot, with little consequence. The Treasury did recognise the unparalleled advantages Australia has experienced, with regards the virus globally and noted that the economy is ‘roaring back’. The AUD was unmoved, trading 0.7830, while the NZD drifted to 0.7250.

European and US equity markets crashed overnight, under the weight of negative growth prospects and looming inflation threats. Chinese CPI increased to 1%, but the PPI number surged to 6.8%, indicating massive input rises are here. These will translate directly into consumer prices and inflation. The German ZEW Economic Sentiment report was a massive positive, but was not reflected in stock markets, which turned into a sea of red across Europe. US markets are still shaken by the shock Non Farm Payrolls number and await the CPI number with apprehension. The EUR traded 1.2150, while the GBP traded 1.4140, enjoying big comparative gains to Europe.

Inflation and growth remain the focus of economic data releases and all eyes now turn to the USA.