Daily Market Commentary 19th March 2021

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The Fed left interest rates unchanged and promised QE infinity would remain, for some years to come. This was a boost to equity markets and saw bond yields retreat and the US Dollar weaken. The Fed has promised to maintain the unprecedented and historical levels of liquidity in the economy until the economy recovery is complete, in the form of growth, inflation and employment. The market reacted accordingly. Following the FOMC meeting bond yields retraced, but it did not take long for the yields to rebel and the US 10 year Bond yield spiked to 1.75%. The Dollar also rebounded strongly after the initial response to the Feds commentary, with the EUR retreating to 1.1900, while the GBP held 1.3940 following the Bank of England rate decision.

The Bank of England followed the Fed’s lead and held current monetary policy and the GBP held ground from a resurgent US Dollar. The Philly Fed Manufacturing Index, surged to levels not seen in nearly 50 years, confirming a recovery in US Manufacturing. Australian Employment surged, with the headline unemployment number crashing to 5.8%, adding over 88,000 jobs to the economy. The AUD rallied strongly to trade up to 0.7850, but later retreated to 0.7785, in the face of a resurgent reserve. The NZD also jumped on the Fed news, but was drowned in negative GDP growth news. The NZ economy contracted 1%, missing expectations and disappointing markets, with the rally in the reserve pushing the currency back to 0.7180.

Markets will be watching the Bank of Japan rate review closely, as they have been undergoing a major review of monetary policy. Questions will be asked regarding the impact on the Japanese economy of the extra-ordinary expansion of the balance sheet of the BOJ in recent years. The Central Banks QE has seen the Bank now own 7% of the Japanese equity market and the balance sheet swell to 130% of GDP! There is also talk of a Central Bank issued Crypto currency, in the near future.

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