Daily Market Commentary 5th October 2022

The global rally in equities continued, as Bond Yields continued to slide, along with mighty US Dollar. This rally extended over two days and may be the ‘October Surprise’? The RBA caught the market by surprise, with a less dovish statement than expected and a rise of only 25 basis points. The market had built in a 50 basis point rise, so the reality triggered a huge spike in the ASX, while the currency plummeted to 0.6460. The RBA seems less concerned about the rampant inflation, than most other Western Central Banks. Australian Building Permits jumped 28.1% for the August month, but remained down 9.5% for the year, while Home Loans contracted 2.7% for August. Australia has surfed the wave of surging commodity prices, with the Index jumping over 30% for the year, which has underpinned the economy. In contrast NZ Dairy Prices fell and Business Sentiment came in heavily negative at minus 42. The RBNZ is expected to also bump rates by 50 basis points, which explains the support for the NZD, which held above 0.5700. If the RBNZ fails to deliver, it could have serious flow on effects in the equity, bond and currency markets.

The EU released the PPI number for August, coming in at a massive 43.3% increase in input prices, which will directly translate into inflation numbers. This rally in Europe is not underpinned by economic fundamentals, but remains a relief rally, with no end in sight for the inflation and energy crises. The EUR also rallied to trade 0.9950, while the GBP shot back to 1.1440, as the Government quickly reverses the unfunded tax cut stimulus package.

All eyes turn to the RBNZ, which is expected to raise rates by 50 basis points. Will they join the RBA and buck global trends, or continue with the war on inflation?