Daily Market Commentary 22nd August 2022

Markets closed the week lower, the negative sentiment cast across European and US markets. German PPI numbers exploded, rising 5.3% for just the month of July, resulting in an annualised rise in input prices of 37.2%! This will feed directly into the inflation numbers, confirming the ECB’s inaction on QT and interest rates, will have disastrous consequences. The heart of the energy crises is the ‘green energy policies’ of European countries, which has been savagely exposed by the EU, US and UK sanctions. This will drive, not only Germany into a deep recession, but the whole of the EU and UK. UK Retail Sales contracted 3.4% as the energy and food crises pushes their cost-of-living through the roof. The dire economic numbers have sent the currencies spiralling lower, with the EUR now testing parity against the US Dollar, while the GBP crashed below 1.1800.

NZ Trade data, released Friday, confirmed the widening of the deficit. July Exports remain reasonably steady, but Imports saw a sharp increase and the June numbers were also revised sharply upwards. NZ is a heavily trade dependent nation and therefore not immune to increases in import prices, only exasperated by a falling currency. The RBNZ raised interest rates another 50 basis points and portrayed an optimistic outlook for the NZ economy, with heroic predictions regarding the prospects of a recession. Australia is in the same boat, but with a stronger trade position, as many of their commodities trade at a premium. The monetary cycle is similar, with rising interest rates and deficits funded by monetary expansionism. The AUD has fallen back to 0.6860, while the NZD crashed to 0.6170.

The coming week will be punctuated with PMI data from Australian, Japan, Europe and the USA.  The Jackson Hole Economic Symposium, will be held this week, with the Chairman of the Federal Reserve hosting. Inflation and growth remain the central economic narrative.