Daily Market Commentary 18th September 2023

US equity markets closed out the week lower, perhaps alerted by the steady rise in Bond Yields in Europe and the USA? Bond Yields have been on the rise and the ECB raised rates 25 basis points this week, although cloaked in dovish language. The coming week will be dominated by speculation and actual Central Bank actions. The Federal Reserve will lead things out, followed by the Bank of England and the Bank of Japan. Inflation will be the key indicator, and this points to some bad news. Inflation in Europe and the USA has been steeply declining, until recently, when both CPI and PPI have reversed course and gotten hotter. This is not the direction Central Banks had hoped for. They have been talking ‘peak inflation’ and thus ‘pause’, or even ‘peak interest rates. The Fed is expected to leave rates unchanged, but it would not be a surprise, if they did raise a further 25 basis points. The Bank of England is expected to raise rates a further 25 basis points as inflation remains very high. The Bank of Japan has been consistent in their refusal to move interest rates from negative ultra stimulative levels, but inflation is starting to creep upwards, in the land of the ‘rising Sun’. The US Dollar continues to build, with the EUR falling below 1.0650, while the GBP crashed below 1.2400.

The steadily rising reserve has put downward pressure on the commodity currencies, with the AUD heading back towards 0.6400, while the NZD plunged below 0.5900. All eyes are now on inflation and the Federal Reserve, while local markets will have plenty of data to pre-occupy.