Daily Market Commentary 3rd October 2022

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Equity markets closed out a dreadful month of losses, with a sell-off in US equities, compounding a terrible month. Economic fundamentals and the inflation/energy crises are playing out in the markets. The Bank of England restored a smidgen of sanity to the UK Gilt market, with a massive intervention, which also stabilised the GBP, allowing it to rise back to 1.1150. The Yen has also been stabilised by Bank of Japan intervention, holding it from record lows, trading below 145.00. The war Central Banks are fighting against inflation is far from over, with European and US inflation data confirming the debilitating increases continue. German inflation hit a record, moving into double figures, while the EU number exploded to 10%. The Fed’s favourite measure of inflation, the PCE, was released overnight and that showed further upward momentum. Central banks must hold their collective nerve and also sharply contract liquidity, accelerating QT. The Bank of England were forced to undo all of their recent progress, when the clueless UK Government released an unfunded fiscal stimulus mini-budget, which could be a nail in the coffin of the economy and the PM  her with her hapless Chancellor?

US equities continued to haemorrhage, wiping out more than two years of gains and reflecting the prospect of a deep and dark global recession. The terror sabotage attack on Nord-Stream 1&2, has cut Germany (and much of Europe) off from their major energy source, deepening the energy crises. The German economy, the engine room of Europe, is in danger of collapse and permanent de-industrialisation. Commodity currencies face the double threat of a soaring reserve currency and flagging commodity demand, from a harsh and extended recession. The AUD has collapsed to trade below 0.6400, while the NZD has crashed below 0.5600, with more pain expected.

This coming week will be highlighted by the RBA and RBNZ rate decisions, of which both are expected to raise rates by at least 50 basis points. Towards the end of the week attention will turn to US Non Farm Payrolls and the lead in reports.

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