Daily Market Commentary 18th January 2023

US equity markets hit the first real correction for the year, following a strong and  confident rally to open the new year. Warnings of recession are now starting to materialise in corporate numbers, with Goldman Sach’s missing earnings targets and warning of a difficult year ahead. The Empire State Manufacturing Index plummeted, falling deeply into contraction mode, unsettling markets. In Europe the equity rally continues as inflation eases and energy prices stabilise. The important ZEW Economic Sentiment report surged back into positive territory and the German inflation number turned negative, for December. German inflation contracted 0.8%, falling back to an annualised rate of 8.6%, from previous double digits. The US Dollar remained soft, with the GBP rallying back to 1.2275, while the Yen traded around 128.00.

Chinese economic data releases were terrible, but in line with expectations, following Covid lock-downs. Chinese GDP plummeted to zero for Q4, while Retail Sales collapsed into heavily negative territory. China has shrugged off the lock-downs ahead of the Chinese New Year celebrations and looks for a strong economic rebound in Q1, 2023. The weaker reserve allowed the AUD to push back towards 0.7000, while the NZD pushed back above 0.6400, despite a fright following the release of the latest Business Confidence numbers. NZ Business Confidence collapsed to minus 70! This is a shocking number and reflects much of the sentiment in an economy beset with inflation and economic challenges. Markets will focus on the Bank of Japan and their latest policy statement, set to be released later today.