Daily Market Commentary 29th July 2022

US Q2 GDP contracted 0.9%, officially putting the US into a recession, by technical data measures. The news was not a surprise, but market reaction was. US equities rallied strongly on the news confirming a recession, as they did on the news of the Fed raising rates. This could be ‘Buy the rumour, Sell the fact’, or it may be that markets are expecting the Fed to back down on further rate rises, to prevent a very deep recession. Either way these facts are disastrous for markets, investors and consumers. The steeply rising interest rate environment can only add to cost-of-living pressures and inflation, while the consumer is hit hard by higher prices and reduced disposable income.

The rally in equities was accompanied by a fall in bond yields, indicating recessionary pressures and the lack of confidence in the Fed’s commitment to the fight against inflation. The US Dollar was also softer, allowing the EUR to push back to 1.0150, while the Yen rallied to 134.00. EU Consumer Confidence remains at record lows, as Europe contends with a deepening energy crises and crippling cost-of-living pressures. German inflation is at 7.5%, record levels, while the US PCE is also expected to hit record highs.

Australian Retail Sales were soft and NZ Business Confidence remains in the doldrums. The softer reserve allowed the AUD to push back to 0.6950, while the NZD rallied above 0.6250. Markets will now turn their attention to European growth and inflation data, due out tonight, while in the US markets will focus on the PCE number and the important ‘University of Michigan Economic Sentiment’ report.