Daily Market Commentary 5th April 2022

The Fed raised interest rates by 50 basis points, in line with the expectations, but failed to reduce QE at the necessary rate. QE has been cut, but continues at a less than severe required rate, thus braking and accelerating at the same time. It is hard to see how raising interest rates can effectively address rampant inflation, while continuing to pump in masses of liquidity. Bond yields drifted, as expectations were met, but remain in an upward cycle globally. The Fed has acted far too late, in recognising and addressing inflation, and by continuing QE,  thus will fail to address the issue with any of the required urgency.

The US Dollar was softer, following the Fed news, with the EUR rising to 1.0540, while the GBP moved towards 1.2500. The EU has proposed phasing out Russian oil, which will also add to the upward pressure on oil prices and add to the energy crises. The NZD was softer, following the RBNZ Financial Stability Report release, which warned of a sharp fall in real estate prices, as interest rates rise. This will also hit the consumer hard. The NZD traded around 0.6450, while the AUD pushed up, to trade above 0.7150.

The Bank of England will probably continue to follow global trends and raise rates. The world is caught between recognising and effectively addressing global inflation. The rise in interest rates, without the contraction of the  collective Central Bank balance sheets, will struggle to address the inflation crises.