Daily Market Commentary 26th September 2022

The UK Government released a Mini-Budget overnight, in an attempt to attack the economic slump and recession. The Budget was a pro-growth, tax cut, stimulus package and should assist in stimulating the economy. The problem with the budget is that it must be paid for, along with the energy/power support package (priced to cost around GBP100 Billion), which was why the UK Bonds (Gilts) surged. UK 10 Year Gilts went from under 3.5% to 3.85% in a few hours, which was a record surge in yields, but reflects the cost of funding the massive increase in deficit spending. This will also test monetary policy, which is at the root of the inflation crises, and will boost already rampant inflation. The GBP collapsed to 1985 lows, trading down to 1.0840, while the EUR plunged to 0.9670.

European flash PMI data was in line with the dire economic news, falling into deep negative territory, across the UK and Europe. US flash PMI data was mixed, as they are not suffering the same energy crises as Europe, yet. US equities plummeted into bear market territory across the index platforms, reflecting the recessionary economy. A Global recession has hit commodity prices and the associated currencies also suffered the pain. The AUD crashed to trade just above 0.6500, while the NZD collapsed to below 0.5750.

The coming week will focus on inflation and growth, with key inflation readings in both Europe and the USA. US GDP will further confirm the lived recession, while UK GDP, will do the same. The Bank of England raised rates by 50 basis points and unusually commented, that the economy was probably already in a recession. The Bank of England will find it hard to combat inflation through rate rises alone, as liquidity must be drastically reduced, while the Government demand more? A rock and a hard place.