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Daily Market Commentary 29th February 2024

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The lack of important economic data allowed markets to meander along, with global bond yields drifting lower, while the US Dollar gained some favour. Markets are building towards the Fed’s preferred inflation measure, the PCE reading, due out later tonight. US and European inflation have been falling markedly, so expectations are that this will continue, but there are some warning signals. The supply chain issues arising from the Middle East was damaging of passage through the Suez Canal and is significantly impacting shipping, therefore timing and costs. Geo-Political risks remain high and threaten global economic prosperity. US GDP was revised sharply lower, but remains at a strong 3.2%, but the very monetary conditions that support this growth is a cause of the inflationary threat. The EUR drifted back to 1.0840, while the GBP was also softer, trading back below 1.2650.

Commodity currencies were sharply lower, with the AUD falling below 0.6500, while the RBNZ impacted NZD plunged to 0.6080. The RBNZ left rates unchanged, and the narrative was less hawkish than previous statements. The NZ Central Bank was employing a controlled and balance statement, observing monetary conditions were under control but inflation remained high, requiring rates to remain ‘higher for longer’. The interpretation by markets was that rate rises were a thing of the past and this triggered the precipitous fall in the currency. All eyes are on tonight’s US PCE inflation number.  

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