Daily Market Commentary 21st April 2023

Markets are digesting corporate earnings, with low expectations, as the Fed’s hawkish monetary policy bites hard. Cleveland Fed President, Loretta Mester, followed colleagues and confirmed at least one more rate rise to come. The rise will bring the Fed up to the 5.0-5.25% range and if inflation continues, further will follow. The ‘peak inflation’ line is not as popular as it was when the banking crises emerged. The Philly Fed survey crashed to lows not seen since May 2020. US Existing Home Sales contracted a further 2.4%, adding to the gloom in the housing sector. The recession in the Europe and the US appears likely, but as inflation begins to subside, Central bank relief may be a possibility for later in the year. EU flash Consumer Confidence Index was minus 17.1, slightly better than last month, but still in negative territory. The EUR traded around 1.0950, while the GBP held around 1.2450, following the inflation reading supporting higher interest rates.

The NZ headline inflation rate plunged from 7.2% to 6.7%, reflecting falls in tradeable components, especially fuel, while non-tradeable components remain worryingly high. The RBNZ’s pre-emptive strike, hiking rates an aggressive 50 basis points, in their last meeting, shows they are on the ball and ahead of the curve. The softer reading allowed interest rate pressure to fall and the NZD to plunge 50 points. The NZD trades around 0.6150, while the AUD pushed back towards 0.6750. Market attention will turn to Japanese inflation data and a screed of PMI data from Asia, Europe and the USA.