Weekly Market Commentary 21st December

The ‘Santa Rally’ has failed to materialise, despite the unprecedented liquidity flooding markets, as economies suffer lockdowns and closures. US markets are keenly awaiting the promised $900 Billion rescue package from Congress, which has been punted since before the Presidential elections. The bailouts are a band-aid to the economic devastation of the politically motivated shutdowns. The economic devastation will follow in the New Year and the deficit and debt will impact global economies for a generation. Monetary Policy has been predictable and orthodox but the fiscal response will be seriously destructive and will impact for a long time to come.

European markets are being seriously challenged by another major political failure, the lack of a post-Brexit trade deal between the UK and EU. Political leaders have had a long time to formulate an agreement, with plenty of precedent to follow, but the EU seems intent on punishing the UK for Brexit and send a message to other recalcitrant member States. The GBP fell back to 1.3500, following the political impasse, while the EUR traded 1.2230.

The geographical advantage that Australia and New Zealand have, has allowed border closures to prevent a major break-out second wave of the virus. This has allowed an economic recovery of sorts and this is reflected in the recent economic data. The AUD is trading above 0.7600, while the NZD holds above 0.7100, supported by recent economic progress. This is all relative and serious challenges await these commodity based currencies in the New Year.