Daily Market Commentary 4th October 2021

US Markets rebounded strongly to open the new trading month and close out a disastrous week. US equities were finally overwhelmed, by the avalanche of cash flooding markets, courtesy of the Fed. US Lawmakers passed a CR Bill (Continuing Resolution) to avoid a Government shut-down and punted all the other spending bills. This avoided the latest ‘crises’ but the debt ceiling remains a critical and definitive issue. The Debt Ceiling will need to be increased, almost exponentially, to cover the proposed ocean of deficit spending proposed by the Democrats in power. Legislation for the US Budget projects $1 Trillion deficits from here to eternity. In addition, structural proposals for an additional $5 Trillion+, will be added to the almost $30 Trillion debt! These numbers soared past the critical 100%/GDP, tipping point, economist suggest is beyond recovery. The Treasury Secretary, Yellen, has called the ‘Debt Ceiling’ a crises and she is right! Yellen suggest that the debt ceiling must be raised, to fund deficit and debt spending, or the US viability will be questioned. If the deficit/debt spending continues to be funded via Fed montisation, then the US Dollar will be under threat, as the Reserve Currency.

The coming week will be dominated by growth and inflation and culminating in the US Non Farm Payrolls number on Friday. Local markets will be focused on the Central Bank interest rate decisions. The RBA will likely follow the international narrative, citing virus triggered lockdowns, as the excuse. The RBNZ has completely lost touch with reality and gone ‘woke’ so they are now employing an indigenous monetary policy, where inflation and employment are secondary to more important social narratives. Inflation is an issue globally and certainly in these trade exposed economies. Energy prices and supply issues are driving cost-of-living inflationary pressures, along with unprecedented monetary expansionism, while lock-downs devastate the economies. Irreparable damage is being inflicted on the inevitable. The commodity currencies are now under threat, by demand issues in Asia and they cannot survive further expansion/dilution of the currencies through debt monitisation.

The RBNZ and RBA face serious questions over their legitimacy and effectiveness, ‘fiddling while Rome burns’.