Daily Market Commentary 24th May 2021

Markets closed a volatile week flat on Friday. Inflation, growth and Central Bank Monetary Policy are inherently linked and dominate the market narrative. UK inflation spooked markets, in the last week, while the FOMC minutes revealed plans for ‘QE Tapering’. UK Retail Sales exploded on Friday, more than doubling expectations, increasing 9.2% for April. PMI data also hit record historical highs as the economy re-opens. European PMI was mixed with German PMI softer, experiencing harsh lockdowns for an extended period, while EU numbers edged higher. The Fed’s hints at ‘tapering’ has given some impetus for the US Dollar, pushing the EUR down to 1.2150, while the GBP drifted to 1.4150 despite the strong economic numbers.

US PMI data was also at record highs, while Existing Home Sales contracted 2.7%, in a worrying trend. US Housing is an important leading indicator and has recently turned negative. The trend will be tested this coming week with the S&P Case Shiller House Price Index, New Home Sales and Pending Homes all released in the US. The RBNZ will meet and evaluate monetary policy this coming week. They will leave rates unchanged and tip their collective hats, to the global Central Bank narrative. They will recognise inflationary pressures and tag them with the transitional/temporary label. The only point of interest will be the view of the NZ economy and relevance to global conditions.

The rising reserve pushed the commodity currencies lower, with the AUD closing the week around 0.7725, while the NZD drifted to 0.7160. Inflation, growth and Central bank monetary policy will continue to dominate markets in the coming week.