Markets were trading quietly ahead of the extended long weekend in the US, for Thanksgiving. Flash PMI data across Australia, Europe and the US was deeply negative and in contraction mode. This was no surprise, as business struggles with raging inflation and spiralling costs. Equity markets have remained bullish, as energy prices (led by oil crashing to US$77/barrel) tumble, cutting the major driver of inflation. Market Bond Yields continue to contradict the Central Banks, picking peak inflation and lower rates. Central banks remain extremely hawkish, while markets are looking over the horizon, at a brighter future. The US Dollar continued to decline, with the EUR rising to 1.0365, while the GBP rallied strongly to 1.2030.
The RBNZ raised rates by 75 basis points, to 4.25%, and was excessively hawkish in their immediate outlook. The Central Bank forecast peak interest rates higher, to 5.50%! The RBNZ has finally woken up, but must also drastically cut monetary expansionism, severely contracting their balance sheet. This is the true test of how serious these Central Banks are, because funding massive deficit/debt fiscal expenditure, is the real reason inflation is out of control. Fiscal responsibility is a political issue and will not be seriously addressed by encumbent Government’s, as they have done the risk/benefit analysis. The hawkish tone of the RBNZ and the softer reserve allowed the NZD to blow through 0.6200, while the AUD rebounded back above 0.6700. Dreadful PMI data was not enough to dampen market enthusiasm.