Daily Market Commentary 26th May 2022

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Global equity markets continued to rally overnight, following the release of the latest Federal Reserve minutes. The Fed minutes revealed an extremely ‘hawkish’ Board, raising rates by 50 basis points, with more of the same medicine to come. The Fed have assured markets of their strategy, by outlining that they will raise rates quickly and as the need arises. The commitment of this Governor will be tested, as his ability to hold the line, has been found wanting in the past. The Fed also expects to cut QE and implement QT, with up to $95 Billion allowed to roll-off the balance sheet, each month by August. This is off a vastly bloated balance sheet of over $9 Trillion! The news was no surprise to markets and bond yields held steady, as did the US Dollar. The EUR drifted back to below 1.0700, while the GBP pushed up to 1.2580, recovery from yesterdays data shocks.

The RBNZ also raised rates a further 50 basis points, telegraphing more to come, in an effort to conquer soaring inflation. The RBNZ has made heroic assumptions, forecasting inflation as peaking and the spike in interest rates and elevated inflation, will not kill the consumer and drive NZ into a recession. The Central Bank has done the correct thing raising the cash rate, but has ignored the massive monetary and fiscal stimulus driving inflation, apportioning the blame to offshore events. The NZD rallied on the MPS, breaking above 0.6500, only to retreat back towards 0.6450 in overnight trade. The action was elsewhere and the AUD settled below 0.7100, as markets await the new Labor Government cabinet and policy indications.

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