Daily Market Commentary 5th April 2024

Equity markets turned positive in Europe overnight, buoyed by some positive economic news and prospects of interest rate cuts. European Services and Composite PMI showed improvements across Europe, while remaining in contraction mode, weighed down by Manufacturing. Services are improving and actually expanded in Germany, while the ECB meets to consider interest rate cuts. The Swedish Central bank indicated they are considering rate cuts, as early as May, following the surprise cut by the Swiss National Bank. Inflation is clearly on the decline in Europe, which allows the Central banks to offer some monetary relief from recessionary economic conditions, in terms of interest rate cuts. EU PPI continued to contract sharply, confirming input wholesale prices are on the decline. The big caveats are energy prices and gold. Energy prices and deficit/debt are the drivers of inflation, and these problems remain, while gold prices have been surging and is the ‘monetary canary in the goldmine’. Meanwhile the US Dollar continues to soften, with the EUR trading above 1.0850, while the GBP pushed up to 1.2660.

Commodity currencies have been the beneficiaries of the weaker reserve, with the AUD surging to 0.6600, while the NZD looks to consolidate above 0.6000. NZ Building Permits surged 14.1%, while Australian PMI data, showed steady improvement in Services and Composite readings. All eyes are on the US labour markets and the Non-Farm Payroll number. A tight labour market only encourages the Fed to defer interest rate cuts and pour cold water on equity and bond markets.