Daily Market Commentary 7th October 2021

The RBNZ joined only South Korea and Norway, as one of the few advanced economies to raise rates and taper QE. The RBNZ is looking beyond the current destructive lock-downs and see cost-of-living inflationary pressures, which are becoming a serious threat to the economy. The inflation narrative of ‘transitory’ or ‘temporary’, employed by the Fed, Bank of England and ECB is no longer tenable. The inflation pressures driven by fiscal and monetary policy and being magnified by the energy crises and supply chain issues, means that the inflation genie is out of the bottle and can no longer be ignored. This may be a precedent, unless the feckless Labour administration, continues to destroy the economy through lock-downs. The NZD reacted to the interest rate rise, with a short-lived rally, but the markets soon realised that these monetary shifts were forced and necessary, so after initially rallying the currency plunged to below 0.6900. The moves were only aggravated by a rally in the USD, which pushed the AUD back to 0.7230, while the cross fell to 0.9500.

The US markets was heartened by the ADP job number, which was higher than expected, with 568,000 jobs added to the private sector. This is a fore-runner to the all-important Non Farm Payrolls, being released Friday and is seen as a positive. US 10 year Bond yields consolidated above 1.5%, giving the US Dollar a boost, although these moves were tempered by a weak ‘Weekly Jobless Claims’ number. Markets are focused on the Non Farm Payrolls number and inflation, while the Debt Ceiling crises in the US looms as a major threat to markets. Europe is undergoing an energy crises, heading into winter, unable to see that green energy policies are at the heart of this self-inflicted pain. German Factory Orders contracted by 7.7%.

Chinese markets re-open after a holiday, so markets will closely monitor their progress, especially considering the looming threat of a potential property market collapse and the impact on the financial sector.