Daily Market Commentary 20th May 2022

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European equity markets booked losses, following the rout on Wall Street, in the previous session. The ECB machinations were open for discussion, as inflation runs rampant through European economies as the ECB discuss what to do? The ECB are sill operating with negative interest rates and massive monetary stimulus, which adds further fuel to the inflation bonfire. All other major Central Banks are aggressively tightening monetary policy and raising rates, as inflation runs around like a bull in a china shop. The ECB have indicated the need to eliminate QE before rates are raised, but cannot confirm when this may happen? The European Bond spreads are signalling big problems, while QE is essential to fund the massive debt programs, keeping member countries afloat. It is already late in the game to be addressing inflation, but this could get away on the Europeans, very quickly. The UK is paying the price for their own reticence, with a 9% inflation rate, and soaring cost-of-living. The food and energy crises is destroying living standards across Europe and needs to be addressed with resolve. At the heart of the problem is self-imposed sanctions on Europe’s biggest supplier of resources.

US markets calmed, after the devastation of the previous sessions, while the US Dollar declined. The EUR bounced to 1.0600, while the GBP broke back above 1.2500, as fears of a deep global recession rise. US equities are staring at bear markets and the likelihood of a deep recession. The housing market, aqs a leading indicator, is in steep decline, with Existing Home Sales contracting a further 2.4%. Commodity currencies were major beneficiaries of the fall in the reserve, with the AUD surging back above 0.7000, while the NZD looks to regain 0.6400. The NZ Budget, released yesterday, was a sea of red ink with fiscal deficit spending attempting to alleviate some of the inflationary pain. Australian Unemployment fell to 3.9%, a low not seen since 1974, ahead of the Federal Election on Saturday.

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