Markets eagerly await the Fed’s rate decision, with equities rising in anticipation of a rate cut, although bond yields were on the rise in the US. Bond Yields have been going the opposite way to the Fed’s pathway of lower rates, in effect, showing little confidence in the Fed’s commitment to cut rates. Inflation in both Europe and the US has bounced off lows and begun to rise again, considering energy prices in the Northern Hemisphere winter, inflation may continue to rise. The UK announced a sharp rise in inflation, jumping from 2.3%, to 2.6%. This will probably deter the Bank of England from further rate cuts, for the time being, despite the need for monetary stimulus in the UK economy. The US Dollar rallied ahead of the Fed IRD, with the EUR dipping below 1.0500, while the GBP surrendered 1.2700.The stronger reserve forced commodity currencies to new lows, with the AUD crashing to 0.6300, while the NZD tumbles back towards 0.5700. The rising bond yields in the US and Europe was shared by NZ, following a dramatic deterioration in the Governments fiscal position, pushing yields higher and the NZD lower. NZ tax revenues nose-dived, and fiscal cuts were way short of achieving any sort of fiscal balance. The NZ Government needs to adopt the ‘Argentina attitude to Government’, slash spending and shrink Government. The Government is spending too much and that is the issue. This will drive inflation and cost-of-living pressures higher, and to release growth in the economy, the Government needs to abandon crushing ‘green energy policies’ and cut energy prices. All eyes are on the Fed.
FOMC UPDATE*
The FOMC decided to cut rates by 25 basis points, but were far less enthusiastic about the rate of future cuts, in the coming year. The Fed cut rates by 25 basis points, but the much more ‘hawkish’ outlook saw US Bond Yields jump sharply higher, as did the US Dollar. The EUR plunged to 1.0420, while the GBP slumped to 1.2630. Commodity currencies suffered further pain with the rising reserve killing the feeble recovery. The AUD crashed to 0.6250, while the NZD fell below 0.5700.
