Daily Market Commentary 2nd December 2022

Federal Reserve Chairman Powell addressed the ‘Brookings Institute’ and fed red meat to the lions. Powell said that rates may increase by a lesser margin, from December, as inflation data signals peak inflation may have been already hit. He reiterated that tight monetary policy will continue until the war is won. Equity markets surged in the final hour of trade, bond yields crashed, as did the US Dollar.  The EUR has jumped to 1.0500, while the Yen has spiked to 135.30. This is exactly what the market has been looking for, but now a new reality looms, in the shape of Non-Farm Payrolls. US employment data is set for release tonight, to wrap up yet another volatile week, and will be consequential. Non Farm Payrolls are expected to come in around 200,000 jobs added. A miss to the downside would indicate recessionary pressures, while a miss to the upside, would ‘green-light’ further Fed action.

Manufacturing PMI data from across Asia, Europe and the USA was deeply troubling, with Europe especially depressing. Prohibitively high energy costs in Europe has killed Manufacturing, with the German ‘engine room’ suffering devastating hits. US data also continues to point to a sharp contraction in Manufacturing. US PCE inflation numbers were off their recent highs and the Fed looks more and more comfortable, which releases the pressure on the ECB, who meet today. The ECB remain way behind the yield curve, so they need to continue to act aggressively on rate hikes and tighten monetary policy. If there is any hesitation, it could be extremely damaging. Locally, the soft US Dollar has allowed the NZD to surge back towards 0.6400, while the AUD breaks back above 0.6800. All eyes turn to the US and Non Farm Payrolls.