Daily Market Commentary 26th October 2022

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US equity markets continue to rally strongly, boosted by the belief the Fed will slow the rate of increase in rates and that inflation has peaked. US Bond Yields were softer overnight and this gave credence to the notion the Fed would take their foot off the accelerator, for tightening monetary policy. European Bond yields also drifted lower and UK Gilts plunged. The UK markets have calmed under the new leadership of Sunak. Time will tell, but this man will need to be a political and economic genius to solve the economic, energy and inflation crises that Britain now faces. The EUR jumped to trade 0.9950, while the GBP surged to 1.1470, as lower US yields translated directly into a softer US Dollar.

The easing reserve afforded commodity currencies some further relief, with the NZD looking to regain 0.5750, while the AUD surged back towards 0.6400 following the Australian Labor Government’s first budget. The budget was a ‘no surprise’ budget, which projected inflation would peak by the end of 2022, at 7.75%. The Government has been hamstrung by the terrible state of the books and restraints on fiscal deficit spending. A bit of a ‘nothing burger’, which is the best that could be hoped for, in the economic circumstances. Local market attention will now turn to the Australian inflation number set to be released today, which may have more of an impact on the currency, than the Federal Budget. NZ Business Confidence is also slated for release today, which has been heavily negative, for some time.

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