Daily Market Commentary 4th May 2023

The Federal Reserve raised rates by a further 25 basis points, as expected, and hinted at a pause to assess the progress as the high rates flow into the economy. Inflation has been extremely stubborn and if the upward pressure remains, the Fed will raise rates once again. The ECB is set to raise rates, following the Fed and the RBA, as they still are a way behind on the yield curve. The ECB resisted an early assault on inflation, even more reticent than the RBA, and are now forced to join the party with gusto. Inflation is resurgent in many European nation and they are far off the ‘peak inflation’ talked about in the media. The US ADP Private sector jobs reports was surprisingly strong. Private sector jobs increased 296,000, double the expectations, but this goods news is not a positive for the Fed. The Fed would like the labour market to loosen, to prove their rate hikes, are working. The Fed news was not great for the US Dollar, as the EUR jumped to 1.1060, while the GBP spike back to 1.2550.

The softer reserve allowed the AUD to trade above 0.6650, while the NZD jumped above 0.6200, following better than expected local employment data. The RBNZ released their latest edition of the Financial Stability Report, which assured markets that banks remained resilient, but had caveats. There are warning signs, in the form of falling House Prices and rising household cash-flow pressures. Markets will now begin to focus on the US labour market. Reports so far have been mixed, with a negative Jolts Job Opening report, while the ADP number blew away expectations. All eyes turn to the Non-Farm Payrolls number. Good news, might be interpreted as bad, in the eyes of the Fed.