Daily Market Commentary 24th October 2022

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US equity markets surged on Friday, to close out a week of gains, building on strong moves for the month of October. San Francisco Federal Reserve Chair, Mary Daly, was speculating on a pause in the Fed’s hawkish interest rate strategy. Market hopes of a ‘Fed hiatus’, rest on the assumption the aggressive interest rate hikes have achieved their goals and halted inflation, thus pausing interest rate hikes, to allow the actions of the Fed to feed through into the economy. This is a forlorn hope and the Fed has iterated this on many, many occasions, realising the dangers of relenting. It was enough to allow equities to surge higher but US Bond Yields remain high.

The UK is in a state of complete turmoil, both economically and politically, following the disastrously brief and record-setting tenure of the worst PM in the long and proud history of the United Kingdom. In just 45 days, she has buried the longest serving Monarch in the history of Britain and also the Pound and the Tory Party! Quite an achievement. The GBP dipped back to 1.1060 during Friday trade, but recovered as risk appetite improved in the US trading session, to regain 1.1300. UK 10 Year Gilts once again broke back above 4% Friday, which is a red flag, as the politically slow-motion train-wreck continues to unfold.

The surge in risk appetite pushed the reserve lower and allowed the AUD to bounce back above 0.6350, while the NZD consolidated above 0.5700. Local markets will look ahead in the coming week to the Australian Labor Government’s first budget, which will be a blue print of fiscal intention rather than a serious economic forecast and reality. Australian Labor Budgets are always heroic on revenues forecasts and short on budgeted costings, resulting in massive misses on deficit/surplus predictions. The Treasurer was the assistant to the ‘Worlds Greatest Treasurer’, Wayne Swan, which says it all. Markets will also gauge the success of the dovish RBA moves in their last meeting, with a read on inflation on Wednesday.

Global markets will again focus on inflation and Central Bank reactionary monetary policy. The Bank of Canada, ECB and Bank of Japan will all announce their latest interest rate decisions. The Bank of Canada and the ECB are both expected to raise aggressively, with hikes 75 basis points, while the Bank o Japan is expected to continue to buck the trend and hold. The Yen is once again testing record lows, so perhaps there is a surprise in store, or maybe just another FX intervention?

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