ABX weekly 03/04/19

Market Update 

The Apr RBA policy decision was as expected keeping rates unchanged and the Governor’s statement was fairly low key ahead of the Federal Budget at 7:30 pm. The Australian Government has promised to deliver a surplus of $7.1 billion next year, pay off all debt in a decade, and provide tax cuts and cash handouts to most citizens if it wins the election next month. The catch is it is looking unlikely they will win the next election. One thing that stands out was their commitment in restoring the trust in the financial system. By acting on all 76 recommendations from the Royal Commission, providing more funding to ASIC to enforcement of deterrence and establishing a Regulative Oversight authority. These all on face value are good news to keep the big banks in check and have more transparency of what investments can be sold. 

China’s first official economic gauge for March signalled a stabilization in the world’s second-largest economy, easing one of the biggest worries for the global outlook. The manufacturing purchasing managers index rose to 50.5 from 49.2 last month, the biggest increase since 2012 and exceeding all estimates by economists. Both new orders and new export orders – leading sub-gauges that signal future activities — rose to the highest levels in six months. 

US and China have made progress in trade talks in Beijing last Friday. The aim was to resolve a nine-month trade dispute between the world’s two largest economies, which seem very productive. The Chinese delegation led by Vice Premier Liu He will head to Washington next week for another round of talks is taken as a positive step forward for a deal to be made.

European Desk

The British exit saga continues and there is no end in sight. The latest date line seems to be the 12th of April and it sounds already as if Theresa May needs to go again to Brussell and ask for another extension. One wonders how much longer she will be able to hold on to power and the talk of an early election is getting stronger by the day. 

The European bond markets in the meantime continue to focus on a global hard landing and yields continue to drift more into negative territory despite some excellent global and regional economic news. The search for safe haven investments also started to have an impact on currency movement with the EUR drifting lower against the US$ and the Swiss Franc which should help to boost Europe’s export industry.  

One of my friends from the Frankfurter Boerse was highlighting to me today the fact that the unemployment rate in Germany has strongly improved from a high of over 10% in 2005 to a current low of just 4.6% and he can’t see any changes in the foreseeable future. In addition, there are many reports that Germany has all sort of skill shortages in many different industries which is hard to believe in the current environment of uncertainty.