Daily Market Commentary 2nd November 2022

Markets are focused on the FOMC meeting and their rate decision. The Fed are expected to raise rates by a further 75 basis points, but markets are hoping for a more ‘dovish’ narrative, indicating ‘peak inflation’ and a possible pause on rate rises. The recent October rally on US equity markets was enormous, a magnitude not seen since 1974, based mainly on the Fed’s perceived softer monetary stance. Bond Yields have steadied across Europe and the US, despite record inflation levels, but growth has managed to remain positive. The EUR drifted back to 0.9850, while the GBP settled to trade 1.1450, adapting to a more acceptable UK PM.

The RBA raised rates by only 25 basis points, as expected for the Melbourne Cup Day meeting, but was quick to point out further rate rises are possible if inflation continues to rise. The RBA revised their inflation forecast higher, to a peak of 8%, but sees this falling away in 2023. Australian and Japanese Manufacturing PMI were softer, but was in positive territory, while the Chinese PMI remained in contraction mode. The AUD fell back below 0.6400, while the NZD rallied to above 0.5800, ahead of the RBNZ Financial Stability Report and press conference. This could shake up domestic markets with any unforeseen surprises?