The RBA raised interest rates 50 basis points, in line with expectations and promised further rises. The RBA warned of inflation pressures continuing this year, towards 8% and rate rises to combat the pressures that are impacting cost-of-living and business input costs. The RBA was late to recognise inflation crises and remains behind the yield curve, internationally, thus interest rate differentials remain mainly negative. The RBA cited international pressures, a tight labour market and continuing capacity constraints. Inflation will not be tamed unless monetary policy and liquidity are addressed, reducing the RBA balance sheet by massively increasing QT. The AUD has fallen to 0.6730 overnight, while the NZD followed, plunging below 0.6050.
The UK installed a new PM, in the form of Liz Truss, elected by Conservative members. Truss has promised to address the energy crises and a myriad of other disasters engulfing the nation. The extremely low expectations may allow give a certain grace period, but the odds are stacked heavily against the one time Liberal. US markets re-opened trade, following the long Labour weekend holiday, with equities continuing to lose ground. US PMI data mas shockingly weak, with both Service and Composite PMI, in a major contraction phase. The ISM non-Manufacturing numbers were steady, but the PMI data confirms the serious nature of the recession. US 10 year Bond Yields spiked to trade above 3.35%. The EUR plunged below 0.9900, as the US reserve powers into safety mode, while the Yen crashed to 142.90.
Inflation, Central bank action and narrative, remain key market drivers.