Daily Market Commentary 3rd May 2023

The FOMC two-day meeting began today and they are expected to raise rates a further 25 basis points, along with the ECB and following the RBA. The RBA surprised markets by lifted their brief ‘pause’ on interest rate rises last month and raised rates 25 basis points. The RBA was anticipating a big fall in inflation, but the last reading was 7%, far too high. The Fed has telegraphed a further rate rise, as has the ECB, with inflation also remaining far too high. European inflation seems to be bouncing back, in the wrong direction, with high reading in Austria (9.8%)and Italy (8.3%). In the US Jolt Job openings plunged once again, falling to 9.59 million, which is a sign that higher rates are beginning to impact the tight labour market. The EUR remains strong ahead of the FOMC and ECB decision, trading just below 1.1000, while the GBP drifted back to 1.2450.

The RBA surprised many and raised rates a further 25 basis points, recognising the stubbornly high inflation. Hitting the pause button last month was a mistake and one this RBA regularly makes, with their overly-dovish sentiment. The political pressure remains too high, but the RBA should have gone ‘hard and earlier’, to get on top of this economic cancer earlier. The AUD jumped above 0.6700 on the news, but has settled back to 0.6650 overnight, while the NZD has followed, rising up towards 0.6200. Manufacturing PMI data from around the world is weaker and heavily in contraction mode, in Europe. The promise of recession, seems likely, which is not great for commodity demand and prices.