Daily Market Commentary 27th March 2023

Markets in the USA closed the week stronger, brushing off the banking crises and embracing the dovish Fed monetary projections. After yet another week of turbulence, markets chose the optimistic path. The Federal Reserve,  the Bank of England, Swiss National Bank , Norge bank and others all chose to raise rates, despite the banking crises. The UK inflation rate exploded, once again, despite softer commodity and energy prices. If this is replicated in Europe and the USA, then huge problems await the Central Banks, Treasuries and Governments. Manufacturing PMI in Europe, Australia and the USA collapsed into negative territory, reflecting the parlous state of the Western economies. The crash in Bond yields in the US and Europe, following the banking crises, portends bigger problems lie ahead. Inflation has not yet peaked and national indebtedness is at critical levels, deteriorating very fast. Safety flights again resuscitated the USD and the Japanese Yen. The EUR crashed back o 1.0750, while the GBP fell to 1.2200.

Commodity currencies suffered the revival in the reserve, with the NZD falling back below 0.6200, while the AUD heads back towards 0.6600. Systemic problems are confronting Western economies and Central Banks, who have been seriously compromised. The solution should be fiscal prudence, balanced budgets and tighter monetary policy (and a severely contracted money supply). None of this is being employed by Governments and Central Banks seem to be faultering. Western Governments only accelerate deficit/debt spending , exasperating the crises, while Central Banks deny, hesitate and obfuscate. Growth and inflation will dominate economic data release this coming week, while the Gorilla in the room, remains the banking sector.