Daily Market Commentary 13th August 2020

Equities surged again overnight, after a late market sell-off in the previous session, on the US bourse. US/China tensions are on the rise and the coronavirus spread is impacting the re-opening of many Western economies. Tech shares were hammered in the previous session, but lead the strong recovery overnight, with the Nasdaq surging to back towards record highs. Risk appetite rose and the Dollar relaxed, allowing the EUR to push back towards 1.1800, while the GBP drifted to 1.3030, dragged lower by dreadful economic numbers confirming the impact of the UK lock-down. UK GDP contracted 20.4% for the June Quarter, although the June month rebounded 8.7%, plus manufacturing and industrial production both suffered severe contractions.

The RBNZ left rates unchanged but announced further steps to combat the recession. The Central Bank expanded their bond buying program (LSAP) from $60 Billion to $100 Billion, while adding a series of further actions, to assist the massive expansion in debt spending. The Bank are considering sending interest rates negative, buying foreign assets and interest rate swaps. The Central Bank is the only reliable cheap source of deficit/debt spending and must fund the recovery/relief/stimulus. Debt monetisation is at the heart of the funding which is more than just problematic. The NZD fell after the announcement, although the flagging reserve allowed the KIWI to trade back to 0.6570, while falling Australian consumer confidence dragged the AUD back to 0.7150.

Resurgent virus infections in NZ, Australia and around the world remain a major economic threat, while US/China Geo-Political tension could seriously impact the supply chain.