Daily Market Commentary 31st March 2023

Global equity markets continue to post gains, sentiment rises as markets consider the banking crises ‘done and dusted’. More good news from European economies, with inflation falling dramatically in Spain and Germany. German inflation tumbled from 8.7% to 7.4%, while Spanish inflation crashed down to 3.3% from 6%! EU progress was not so good, with headline inflation remaining stubbornly high, falling from 8.6% to 8.5%, encouraging the ECB to continue to raise rates. Looking behind the headline inflation numbers is not so positive. German food inflation skyrocketed by 22.3%, it was only the massive energy subsidies that reduced the energy impact on inflation from a year ago, and at a massive fiscal cost. Spanish inflation was tamed by abolishing VAT on food prices. These measures are all temporary and will return, as the driver of inflation was the Ukraine War (which continues) and subsidies removing cheap energy supplies to Europe. US Q4 GDP was lower, falling from 3.2%, to 2.6%, but remains positive. The 2023 year may be different, with bond markets pointing to a sharp recession. The EUR digested the stubborn EU inflation and rallied towards 1.0900, while the GBP traded around 1.2350.

Commodity currencies enjoyed the softer reserve, with the AUD trading around 0.6700, while the NZD held above 0.6200 despite the release of some dreadful economic data. Business confidence in NZ is at a staggering minus 43.4, while Building Permits fell 9%, for February. Economic conditions remain tough, as markets look towards inflation data out in the US (PCE), growth and the banking sector developments.