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Daily Market Commentary 5th August 2021

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The ADP Private Sector Jobs report was a blow-out miss, as markets were expecting 690,000 jobs added, but only 330,000 were added. The ADP is a big indicator of where the all important Non Farm Payroll number will be on Friday and this does not bode well. The economic narrative of a strong recovery is fading fast, with rising inflation and ow growth adding up to ‘Stagflation’ perhaps? Equites immediately turned sour and dragged market sentiment lower, despite a stronger ISM Services number.

NZ Employment data blew out expectations, with the headline Unemployment number crashing to 4.0%, from 4.7%! This was a surprisingly strong number and dragged wage pressures much higher. The Labour market pressures will add to the already strong cost-of-living pressures and inflation. The RBNZ will now find it hard to convince anyone that inflation is in any way ‘transitory’. This will see the end of monetary easing, with a rise in interest rates the only option to combat inflation. It will be interesting to see if the massive expansion of the money supply, under QE, will continue? Perhaps Modern Monetary Policy, as a theory, will be debunked?

The NZD surged after the employment numbers and the impact on monetary policy was digested, but has settled back to trade 0.7040, while the AUD faded to 0.7380. Australian Services and Composite PMI numbers collapsed, as the lock-downs are reflected in the economic data. The Australian solution to a surging delta virus has been lock-downs, which are economically and socially devastating. History will not judge these politicians well!

European markets were stronger than the US, while PMI data was steady, with the EUR trading 1.1830, while the GBP pushed back towards 1.3900. The Bank of England announce their latest interest rate decision and they are likely to be more Hawkish than the Fed and ECB. UK PMI data was stronger than both the US and Europe and the re-opening should put inflationary pressures to the fore. The Bank is likely to adjust QE and the monetary narrative.

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