Daily Market Commentary 6th August 2024

The rout on global equity markets gathered pace overnight. The underlying cause is the apparent looming fall into recession of the US economy, accelerated by the Fed’s reluctance to begin the ease interest rates. The underlying problems are far greater. There is enormous pressure on the Fed to cut rates to stimulate a faltering economy and to ease pressure on the burden of debt serviceability. On the flipside, the Fed sees persistent and underlying inflationary pressures remaining. The Fed will begin to cut next month, but if it is too soon, inflation will come roaring back. The Fed is caught between a rock and a hard place. The Japanese Nikkei Index collapsed on Monday’s trade, falling 12.4% on the day, while the Yen rallied to 141.68. The European and US markets followed, with mayhem of stock markets, as losses skyrocketed. The EUR spiked upwards to trade above 1.1000, at one stage, while the GBP fell to 1.2710.

Markets are in disarray, and this will only increase uncertainty. The commodity currencies tumbled, with the AUD falling back to 0.6360, before recovering late in the session. The NZD also suffered a buffeting, with the KIWI falling back to 0.5870, before recovering back above 0.5900. Fear and panic on equity markets becomes contagious, particularly when there is underlying economic