Daily Market Commentary 30th April 2021

The FOMC meeting was a complete yawn, as the Fed assured markets that QE Infinity would continue on and inflationary pressures were transitory. Full speed ahead on the monetary and fiscal fronts, means that the US economy will be running red hot for the foreseeable future. Joe Biden, in his address to Congress, promised another gigantic spending package of up to $2 Trillion! This is the latest in a series of fiscal spending promises that are designed to flood the economy with stimulus and fulfil political goals. The US Government has a budget of over $5 Trillion annually and in addition to this blow-out deficit spending, they have already added $2 Trillion in pandemic bail-out stimulus, since the election. Biden has proposed $4 Trillion in infrastructure and ‘families’ spending. The proportions of expenditure are mind-blowing in size, and are funded through deficit and debt. The GDP for the US is only $21 Trillion and they have announced fiscal spending of over $10 trillion in just this year! Debt to GDP is now at extremely dangerous levels and the US Dollar will come under extreme pressure. US Inflation will explode, despite what the Fed comments about ‘transitory CPI’, as input costs are sky-rocketing.

US Q1 GDP was 6.4%, better than previously forecast, but understandable considering the magnitude of fiscal and monetary spending. US Pending Home Sales rose 1.9% and now stand at 23.3% for the year. The US Dollar remains under pressure, with the EUR trading above 1.2100, while the GBP has broken back above 1.3900. US Bond Yields are creeping back up again and once the market focus returns to debt/deficit and inflation, we will see some serious consequences.

NZ Trade data, was in line with expectations, while Business Confidence remains negative. Commodity prices continue to surge, with coal and iron ore showering Australian budgets with cash, with Iron ore hitting US$180/t! The massive surge in commodity prices is allowing improved terms of trade, although domestic deficit and debt are substantial and growing problems. The flagging reserve and strong revenue has allowed the AUD to trade above 0.7750, while the NZD pushed up to 0.7225.

Growth and inflation remain key market drivers.