Daily Market Commentary 4th November 2022

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Markets continue to whiplash around the Fed’s monetary policy. The Fed announced a further 75 basis point rise yesterday and equity markets initially soared, as analysts picked out the dovish referral to ‘monetary policy having a lag effect on inflation’ and this would be considered by the Bank. Chairman Powell quickly dismissed any hope of a pause/pivot, saying a pause would be ‘premature’ and that the ‘terminal’ rate would be higher than previously stated. The equity market then collapsed, losing over 700 points on the DOW. US Bond yields have spiked to 4.14, pushing the US Dollar higher, once again. The EUR fell back to 0.9750, while the GBP collapsed to trade 1.1160. The Bank of England raised rates by 75 basis points, the largest rate rise since 1989, and warned of a deep and prolonged recession. The B of E has warned the economy could be headed for the worst recession since the 1950’s and this will only get worse unless the inflation genie is tamed.

US PMI data was dreadful, falling deeply into contraction mode, while the US Trade deficit spirally up to over $73 Billion for the month! Things are going pear-shaped across Western economies, with PMI data in Australia and Japan also showing deep contractions. The Challenger Jobs Report, showed an increase in Job Cuts, to 34,000. Market attention now turns to Non Farm Payrolls, which has been remarkably strong in recent times, but this has only enabled the Fed to go hard on rate rises.  The rising reserve flattened the commodity currencies, with the AUD crashing to 0.6270, aided by the weak economic data and gutless RBA, while the NZD plummeted to 0.5740. All eyes turn now to the Non Farm Payroll and employment data released tonight in the States.

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