Daily Market Commentary 3rd February 2023

The Fed raised rates 25 basis points, in line with expectations, and this was welcomed by markets. The ‘peak inflation’ narrative has been widely accepted and the Fed is expected to pause rate rises, in the not too distant future. The Bank of England and ECB both followed the Fed and were even more aggressive in their respective rate rises, both raising rates by 50 basis points. The Yield curves in the US and Europe are steeply negative, as bond yields plummet, reflecting the market perception of their own reality. They are expecting inflation to ease and rates to fall. The Bank of England and ECB have both reviewed economic expectations higher, but there appears to be a lot more fences to jump over on his obstacle course? The EUR had initially jumped above 1.1000, but a resurgent US Dollar forced the currency back to 1.0900, while the rise in the GBP also evaporated, falling back to 1.2230.

Commodity currencies reached for highs, only to be cut back to size by the resurgent reserve. The AUD crashed back below 0.7100, while the NZD fell back below 0.6500. NZ Building Permits contracted 7.2% in December, although this may change following recent events, while Australian Building permits have contracted sharply for the year. The US Challenger Jobs report pointed to a sharp rise in job layoffs, while the ADP also pointed to a weaker labour market, in the lead up to tonight important Non-Farm Payroll number.