Daily Market Commentary 2nd October 2023

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Equity markets closed out a very bleak September, with further equity losses to contend with and a dark outlook for the fourth and final quarter. Recessionary conditions prevail across much of Europe, as energy prices head north into the fast-approaching winter. Energy prices and massive debt and deficits are once again reviving inflation, in the US and Europe. The Northern Hemisphere summer has been a blessing, with lower energy prices and tumbling inflation, but this may be coming to an abrupt end. Russia and Saudi Arabia have imposed massive cuts to global oil supplies and Russia has imposed a ban on diesel exports. Transport is a big driver of inflation in Europe and around the world. The Fed’s favoured gauge of inflation is the PCE Inflation Report, which was released last Friday. Inflation has been tumbling, in the US and Europe, in recent times. The PCE inflation measure, showed this had hit a brick wall, rising back to 5.5% and reversing the recent cooling. This will probably ensure, that the Fed will once again raise rates, at their next meeting. The US Dollar stabilised to close out September, with the EUR bouncing back to 1.0570, while the GBP regained 1.2200.

The softer reserve allowed commodity currencies some room for recovery, with the AUD trading around 0.6450, while the NZD looks to regain the ‘BIG’ figure of 0.6000. The coming week is a big one for local markets, with both the RBA and the RBNZ, meeting to decide monetary policy. The recently promoted RBA Governor will not dare to rebel against her political masters by raising interest rates. The RBNZ is an equally political beast and with the fast-approaching NZ election, will not dare to impose further rate rises. Global markets will be watching out for growth and employment. US markets will be looking at a plethora of employment reports, culminating in the all-important Non-Farm Payrolls, to be released next Friday. The labour market is expected to cool, so any variation will have serious negative consequence for both bonds and equities.

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