Global equity markets continue to rally in October, fuelled by the speculation that the Fed will ease up on interest rate rises and that inflation has peaked. The Bank of Canada reinforced this theory, raising their rates by only 50 basis points to 3.75%, when markets were expecting a full 75 basis point rise to 4%. The Fed are also expected to ease the rate of interest rate rises and this has driven risk appetite. US Bond Yields has fallen, with the 10 year crashing back to 4%, while the US Dollar rally has been seriously interrupted. The EUR has rallied to above parity, trading 1.0070, while the GBP jumped to 1.1470. UK Gilts yields continue to plummet, confirming the markets affirmation and respect of PM Sunak, however the UK citizens will need plenty of convincing.
The RBA surprised markets in their last meeting, only raising rates by 25 basis points, with a ‘blue sky’ view on inflation. This was blown out of the water with the release of the latest inflation data. The CPI number revealed a spike upwards in the CPI to 7.3%, while markets expected a maximum of 7%, completely destroying the peak inflation narrative. Core inflation jumped 50 points to 6.1%, reinforcing that inflation is not only on the rise, but is very wide-spread. This also casts doubts on the Australian Government’s first budget, which was based on inflation peaking in 2022!? The plunging reserve allowed the AUD to jump towards 0.6500, while the NZD broke above 0.5800, despite a terrible Business Confidence report.
Markets will continue to focus on the ‘peak inflation’ narrative and keenly await the outcome of the ECB and Bank of Japan interest rate decisions.