Daily Market Commentary 24th March 2021

The Fed Chairman Powell and Treasury Secretary Yellen made a joint appearance in front of Congress. Powell reiterated his latest assessment of the economy from the last FOMC meeting, confirming the ‘recovery had progressed more quickly than expected’ and cited the quick fiscal and monetary policy moves as the reason. They reassured Congress support would continue for ‘as long as it takes’. There were no surprises, so far and bond Yields remained steady, while the USD booked gains.

European markets drifted, as the resurgent virus tempered hopes that lock down restrictions would be eased soon. The extended measures will impact economic data, moving into the second quarter, while the roll-out and effectiveness of the vaccine are challenging. Rising US interest rates are starting to impact the all-important housing sector, with US New Home Sales contracting 18.2%, following February’s 6.6% fall in Existing Home Sales. The advance of the Dollar pushed the EUR back to 1.1850, while the GBP crashed to 1.3750, despite a stronger than expected (far less believable) Unemployment numbers.

The NZ Government released a new Housing Policy, designed to battle the runaway housing bubble, with supply and demand solutions. The Government added a strong Capital gains tax and cut interest rate deductions on investment properties. The injection of cash into the building process may be one positive? The package was not accepted well by the markets and the NZD collapsed to 0.7000. This is an attack on one of New Zealanders favourite investments and will impact the economy. If the measures succeed in driving down house prices, then the accumulated wealth will fall, thus consumer demand. The reduction in investment properties will reduce the supply of the rental properties and rising rents will also impact the consumer. The rising reserve added to the KIWI’s pain and the AUD also fell back to 0.7670, while the cross fell back below 0.9150.

Markets continue to focus on the Congressional testimony of Yellen and Powell.