Daily Market Commentary 9th September

The Queen is dead, long live the King! The ECB raised rates overnight by 75 basis points to 1.25%. This is a record rate rise and necessary, but ineffective in the context of global monetary situation. The ECB should have hiked rates by magnitudes of multiples, in terms of whole percentage points, in order to seriously address rampant inflation in the EU. The real problem lies in the liquidity and the ECB have not addressed this. They need to seriously eliminate QE and substantially contract the balance sheet. Effective interest rate hikes and QT will not happen, as the ECB and EU need debt and deficit spending to fund their blow-out fiscal spending and not cripple the highly indebted member nations. The EUR recovered some ground following the rate increase, trading back to 0.9990, while the GBP looked to regain 1.1500.

Australian trade data was concerning, with exports plunging 9.9%, but they still remained in surplus. The softer reserve allowed the AUD to consolidate above 0.6700, while the NZD held above 0.6000, despite dismal manufacturing data. Markets may look to the EU meeting tonight, to consider the status of the energy crises, engulfing the whole of Europe. The feckless political leadership will have no clear pathway out of this crises, moving towards the colder seasons. It is the leadership in Europe that needs to change. King Charles is a change at the top, following the longest serving British Monarch, but he will have little impact on the crises enveloping the UK.