Daily Market Commentary 9th January 2023

European markets rallied into the close Friday, completing a strong week on European bourses, for the new year’s open. The heart of the rally has been based on inflation easing in the Eurozone, following significant falls in France and Germany. The EU inflation rate fell back to 9.2%, suggesting ‘peak inflation’ may have past, although Core Inflation rose to 5.2%. Energy prices continue to tumble, with European gas prices crashing back to almost pre-Ukraine war levels, while oil prices continue to drift lower. The welcome fall in inflationary pressures, may allow the ECB to ease the aggressive monetary tightening policy, adopted of late. The Federal Reserve have reiterated time and again that they will not flinch in their own war on inflation, but the ECB have been late to the game and are seen as much more easily influenced. The EUR rallied back to trade 1.0650, while the GBP looks to regain 1.2100.

US equity markets surged, following the latest Non-Farm Payroll numbers. The economy added 223,000 jobs, which was in line with expectations, but soft enough to possibly discourage the Fed. The rally in equities put markets on a positive footing, for the 2023 trading year, while ISM Non-Manufacturing PMI slipped into contraction territory. Economic data remains weak, which is further deterrent for the Fed, allowing them an off-ramp on interest rate rises. This coming week will continue to focus on inflation and growth, while China returns to normality before the Chinese New Year. Economic predictions of recession in Europe remain, but the easing of the energy crises, may limit the depth and length of the recession. The softer reserve allowed the commodity currencies to close the week strongly, with the AUD breaking back above 0.6850, while the NZD pushes up to 0.6350.