Daily Market Commentary 4th January 2022

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European equity markets surged overnight, followed better than expected inflation data coming out of Germany. German CPI numbers came in at an annualised 8.6%, down from 10%.This was a big fall in inflation, much bigger than expected and was a boost for markets. Energy prices have eased and allowed inflationary pressures to slow, giving some hope to markets. The EUR promptly fell back to 1.0540, while the GBP surrendered the hard fought 1.2000. US equity markets went the opposite way, plunging in the New Year’s trade, following a weaker than expected Manufacturing PMI number. The weaker than expected manufacturing number took positive markets by surprise, revealing the weakness in market confidence.

The rising reserve hit commodity currencies, with the NZD falling back to 0.6200, while the AUD fell below 0.6700. Australian Manufacturing PMI data was also weaker, indicating there are problems out there, with warnings of further supply chain issues in 2023. Markets will continue to monitor inflation data closely, while the Fed Minutes will be closely scrutinised. Later in the week the Non-Farm Payrolls number will come into focus.

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