Daily Market Commentary 4th April 2023

OPEC+ caught markets by surprise over the weekend, with a more than 1,000,000 barrel/day cut to output, anticipating downward price pressures from global recessionary fears. The cut caused an immediate spike in oil prices, adding to fears that recent softer prices, have allowed inflationary pressures lower. PMI data in Europe , Asia and the US was all very weak, showing consistent contractionary mode and yet further confirmation of a global recession. The Japanese Tankan report confirmed bad news in the Japanese economy, as the manufacturing sector struggles under weaker global demand. This was not enough to scare flight to the safety of the US dollar, as the EUR approaches 1.0900, while the GBP trades just south of 1.2400.

Commodity currencies were beneficiaries of the softer reserve currency, with the AUD jumping back above 0.6750, while the NZD pushed over 0.6250. Global economic conditions point to a recession and data is confirming that. Oil prices hikes and energy in general, will put greater pressure on inflation and interest rates, which had appeared to be on the mend? Local markets await the RBA rate decision today, with expectations of a further 25 basis point rise. This was not unexpected but further inflationary pressures, through higher energy prices, will only serve to increase the likelihood. The narrative will be closely watched, for signs of a pause to the string of rate rises, and a change of attitude at the RBA?