ABX Weekly 04/12/2019

Market Update  

 

 

Australia’s economy slowed last quarter as interest-rate and tax cuts failed to spur household spending, reinforcing expectations the central bank will need to resume its easing next year. Gross domestic product (GDP) advanced 0.4% (which was below economist forecast of 0.5%) for the third quarter while previous quarterly growth (Q2) was revised higher to 0.6%.  The annual GDP growth however came in as expected at 1.7%, which is still well below the RBA target range of 2-3%. 

The report comes a day after the Reserve Bank held interest rates at 0.75% following three cuts since June to try to revive consumption and rekindle economic growth. The Australian dollar traded lower after the data and was at 68.38 U.S. cents at 11:56 a.m. in Sydney on bets the RBA will need to resume cutting in 2020 to nudge households to spend. 

A flurry of trade news roiled global markets, Trump on the offensive and aiming his tariff weapon from South America to Europe and China, hinting at additional trade deal delays, further denting hopes of a global recovery.  Global bonds surged, Treasuries the most since August (3-11bp) 

Signs are mounting that China’s financial stress could soon test policy makers in the world’s second largest economy. With early indicators showing growth slowing for a seventh month in a row, increasing risks in the banking system may only add to the dilemma. This week’s unprecedented debt restructuring at a state-owned company points to authorities being wary of moral hazard from bailouts. All of which is probably adding to the country’s apparent unwillingness to react with more than vague threats to President Donald Trump signing the Hong Kong bill.  

 

While China’s economy seems to be giving some mixed signals, there are signs that the worst may be over for the euro area. German unemployment unexpectedly dropped in November as a slump in manufacturing started to show signs of stabilizing. This morning’s flash inflation estimates showed a pick-up to 1%, ahead of expectations, but still far below the ECB’s target. Investors are taking notice of the less-than-awful outlook with U.S. purchases of ETFs focused on European assets hitting the highest level in almost two years in November.