Daily Market Commentary 31st August 2022

Markets remain focused on inflation, growth and Central bank monetary policy. The energy crises is engulfing the UK and Europe, forcing cost-of-living rises to crippling levels, while business struggles to cope with the energy input cost blow-outs. Goldman Sach’s released a report on UK inflation overnight, suggesting inflation could rise above 22%, while GDP growth could contract by 3.4%. This is a nightmare scenario, welcoming spiralling ‘stagflation’, while entering a very deep recession. Europe is in the same boat. The GBP crashed to 1.1620, while the Yen collapsed to record lows around 139.00. The ECB is now considering raising interest rates by 75 basis points, to fight rampant inflation, but they are way behind the yield curve.

The  S&P Case-Shiller Home Price Index fell to 18.6%, lower than expected, as the leading sector of housing continues into sharp decline. The US Bond Yield curve remains sharply inversed, reflecting a deepening recession, which cannot be addressed by fiscal recklessness, as the US administration seems intent upon executing. The reserve continues to harden, pushing the AUD back to 0.6850, while the NZD fell to 0.6130. Local markets will watch the NZ Business Confidence data, to be released later today, while Australian inflation numbers grow in importance.