Daily Market Commentary 20th October 2023

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Federal Reserve Chairman Powell delivered a hawkish speech overnight, confirming tighter monetary policy will be needed, to curb persistent inflation. The US 10-year Bond yields headed towards 5%, a level not seen since 2007, driving equities lower and supporting the US Dollar. The tighter monetary conditions will be needed to fight inflationary pressures and cool the labour markets. The Fed’s Beige Book saw steady conditions prevail, with possible signs of weakness, which is what they were looking for. Weekly Jobless Claims in the US were weaker than expected, while the Philly Fed Manufacturing Index remains weak. The rising bond yields supported the Dollar, with the GBP slipping below 1.2100, but the EUR bucked the trend and headed back to 1.0600.

The stronger reserve hammered the already troubled commodity currencies, with the NZD plunging back towards 0.5800, while the AUD briefly crashed below 0.6300. Australian Unemployment data was steady, with the headline rate falling from 3.7% to 3.6%, but full-time jobs added was negative and the gains were all part-time. The RBA Annual report made for some sobering reading, with massive unrealised losses sitting on their books, a hangover from the ‘pandemic debt monetisation’. This will have long-term implications for the Central Bank and the Government, halting all dividends and perhaps requiring bailouts to the tune of Billions$$$. Domestic market attention will turn to Japanese inflation and NZ Trade numbers.

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