Daily Market Commentary 5th September 2022

Non Farm Payrolls was bang in line with expectations, adding 315,000 jobs, allowing markets a brief respite. European markets rallied strongly, following the satisfactory jobs report, as the previous strong report had triggered a major sell-off. The ‘so-called’ strong labour market had ‘green-lighted’ the Fed on their hawkish monetary policy program, but the vanilla report was apparently the answer? European equity markets shook off a week of losses and rallied strongly, as did US markets, in morning trade. Reality dawned on US equity markets, before the close for a long weekend, with a collapse in equities. The US Dollar rallied back strongly, with the EUR falling back to 0.9950, while the Yen plunged to 140.80.

The strong labour market across the Western economies are in part due to measurement techniques, which hide real unemployment and part due to the lack of ‘work intention’. Participation rates are low, so there is a lot of people not working, but not listed as unemployed. This puts upward pressure on wages and adds to the wage-price spiral and inflation. The energy crises engulfing Europe is set to continue, with the heavily sanctioned Russians closing the Nord Stream gas pipeline, in line with the European sanctions. Energy bills in the UK and Europe have not increased by a percentage, but by multiples, crippling cost-of-living and disposable income.

Commodity prices have given some cover for the associated currencies, but the surging reserve has beaten the AUD back below 0.6800, while the NZD has fallen to 0.6050. Inflation from the energy crises and tight monetary policy is driving the recession and fiscal pressures prevent the politicians from relief. The looming winter only threatens more pain and a possible food crises. Politicians must act to strike the energy crises out.