Daily Market Commentary 1st February 2023

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European GDP eked out the smallest of gains,  miraculously growing 0.1% for Q4, following the Q3 gain of 0.3%. These numbers are marginally just beating the definition of a technical recession, but are bloated and do confirm the struggling economic realities of the European economy. German Retail sales plunged 6.4% in December, while French inflation shows little sign of abating. European growth numbers are weak and on the margin of recession, while inflation is killing the consumer and hammering living standards across the zone. Attention will now turn to the Central Bank action, led out by the Federal Reserve, followed closely by the Bank of England and the ECB. The Fed is expected to raise rates by 25 basis points, while the ECB and BofE are expected to raise by 50 basis points, as they remain behind on the yield curve. The narrative from the Central Banks will be important and expect fairly steadfast commitment to aggressive monetary policy, in the fight against inflation. The EUR was steady, trading around 1.0850, while the GBP drifted back towards 1.2300.

Commodity currencies are not faring too well, despite the rising interest rate environment, as inflation and weather events take their toll. The NZD fell back to just above 0.6400, while the AUD dipped below 0.7000, following a 3.9% fall in Retail Sales. The RBA is expected to be more aggressive in their monetary fight against rampant inflation, while these actions are necessary, they will hit house prices and the consumers disposable income. The RBNZ will raise rates, but as a continuation of their aggressive existing monetary policy, which does seem to be slowly working. Inflation is a destructive economic disease and very hard to cure once established in the economy. All eyes turn to Central Banks actions and narratives.

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