Daily Market Commentary 26th January 2023

European and US equity markets headed south, correcting the recent rises, perhaps glimpsing some coming economic reality. This was despite some positive economic data releases in Europe, with the IFO Business Climate gauge higher than expected (although still at historical lows), while flash PMI data from the EU, turned into positive territory. The Geo-Political news was not too positive, with Germany escalating the Ukraine conflict by agreeing to cross a ‘red line’ and provide battle tanks to the conflict, after previously refusing to do just that. The escalation of the war is a threat to Europe and their economies. The US Dollar stabilised, with the EUR trading 1.0880, while the GBP held around 1.2350.

Australian inflation shocked markets, charging up to 7.8% annually, the highest seen since 1990. The RBA has been reluctant to raise rates, with the same velocity of other western Central Banks, defending against a possible real estate re-adjustment. Their reticence is proving very costly, as inflationary pressures surge. This will place immense pressure on the RBA to raise rates at the next meeting and act more aggressively with their future monetary policy decisions. The AUD broke above 0.7100 following the news, boosted to rising bond yields, but settled lower in overnight trade. NZ Inflation was, in contrast, in line with expectations. The CPI came in a 7.2% per annum, testament to the aggressive monetary policy of the RBNZ, but remains at far too high and wreaks havoc with the consumer. Market attention will now turn to US GDP growth and PCE inflations measures.