Daily Market Commentary 31st August 2023

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US equity markets continued to rally into the close out of August, trying to regain some of the losses, in what has been a bad month on the share markets. The latest economic data, out of both Europe and the USA, is weak.  This is seen as a positive, as Central Bank monetary policies, are finally taking effect. US GDP was reviewed lower, from 2.4%, to 2.1%, while the labour market appears to be finally cooling. Jolts Job opening plunged, while the latest ADP report showed private sector jobs growth, was weakening. These all points to a slowing the US economy, and more importantly the wage/price spiral, which was is a major driver of inflation. If the inflation pressure is reduced, then the Fed may recognise ‘peak inflation’, which will mean liquidity may begin to return. European inflation remains stubbornly high, with German CPI numbers fairly static, which is a concern considering the economy is falling off a cliff. German Imports plunged 13.2% for July, the most since 1987, which is further confirmation of the dire situation the German economy is in. The softer inflationary pressures allowed the US Dollar to fall back, with the EUR breaking back above 1.0900, while the GBP regained 1.2700.

The easing of the reserve allowed further consolidation of commodity currencies, with the AUD pushing back above 0.6450, while the NZD regained 0.5950. Building Permits in both Australia (minus 10.6%) and NZ (minus 5.2%) confirmed the pressures in the housing industry, as huge cost rises, and flagging demand take their toll. All eyes now turn towards US inflation and the all-important Non-Farm Payrolls number.

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