Daily Market Commentary 18th April 2024

The Fed have cautioned rates will not begin to be cut until further progress is made on inflation and that the rate must return to the 2% band. The ECB have hinted that rate cuts will probably come in June, but with caveats, the Middle East. Inflation was sparked by an energy crisis (and accelerated by massive deficit/debt spending), which was a direct result of Western sanctions on Russian energy due to the Ukraine war, while the Middle East war escalation is a serious threat to energy prices. Markets are keenly aware of this and remain extremely vulnerable, with equities tumbling and bond yields spiking upwards. Inflation readings from the EU and the UK confirm inflation is headed in the right direction, but the US latest reading was a reversal and moved back up. The US Dollar received some support from rising bond yields and fears over an escalation of the Middle East crises but settled overnight. The EUR rebounded to 1.0670, while the GBP traded flat around 1.2450.

The softer reserve allowed some recovered from the battered commodity currencies, with the AUD bouncing back towards 0.6450, while the NZD broke back above 0.5900. The quarterly measure of inflation in NZ showed problems remain, with Q1 CPI increasing more than expected, although the headline rate fell from 4.7% to 4%. Look for further volatility in markets as the Middle East crises unfolds.