Daily Market Commentary 19th October 2022

Inflation and growth remain key market indicators and drivers of monetary policy and the NZ inflation rate spiked upwards, surprising many in the markets. Expectations were for a considerable easing in inflationary pressures as oil prices tumble and energy costs in the economy calm. The real worry is the broad-based rise in non-tradeable domestic inflation, in the form of housing, food, construction etc. Inflation now has a grip on the economy and the RBNZ is failing in it’s fundamental duties, pre-occupied with ‘woke-onomics’, forgoing independence and towing the Labour Government line. The RBA also released their minutes from their last meeting, which surprised markets, by only raising rates by 25 basis points. The minutes revealed that the RBA saw the slowing in global growth and easing inflationary pressures, especially in energy, and decided to ease the rate rise program. This may prove to be a big mistake as international inflationary pressures remain strong and the RBA was late to the game, in terms of addressing the crises.

US equity markets continued to rally, bouncing in a ‘bear market’, but the economic fundamentals remain severely challenging and the volatile bond market reflects that. The German and EU important ZEW Economic Sentiment reports were released overnight and it remained critically depressed. European markets will look to inflation readings in the UK and Europe, later today, which are tipped to break into double figures. The GBP has held above 1.1300, but remains extremely vulnerable, while the EUR trades around 0.9850.

The Yen has collapsed back to 149.20, reaching levels where the Bank of Japan was forced into a rare market intervention previously, which may provoke them into action, once again? Commodity prices remain under threat from a global recession, while the currency market remains extremely volatile. The AUD looks to hold above 0.6300, while the NZD inches upwards, as pressures mount on the RBNZ.