Australian Bond Exchange

ABX weekly 05/06/2019

Market Update  


The Reserve Bank of Australia (RBA) has lowered the official cash rate in their June meeting by 0.25% to record lows of 1.25%. The move breaks a 34-month streak of no movement to allow the stimulus to the Australian economy. The RBA has cited concerns on the lack of global inflation as well as the rise in unemployment. Inflation figures have been creeping below the RBA’s own inflation target band of 2%-3%. 

Market sentiment has been improving from the talks about more monetary easing by central banks around the globe. Shares and bond price prices continue to rise as people search for better yields. Mexico’s President said it expected to avoid US tariffs, and Fed Chairman Powell said rates could be lowered if required.  

Bond investors are positioned for at least two Federal Reserve rate cuts by the end of the year. St. Louis Fed President James Bullard says a cut may be needed soon to counter trade-war risks. Vice Chairman Richard Clarida said the bank is prepared to ease if needed. It’s no wonder then that today’s opening remarks by Chair Jerome Powell at a policy conference in Chicago will be very closely watched for any pushback against the rising consensus. 


European Desk 


The Brexit saga is going into a new round with PM Theresa May going to leave her post and speculation is ripe that Boris Johnson is going to be her successor. Recent comments by US President Trump that Mr Johnson would be an “excellent” Tory leader has given the Brexit camp further support and the US President apparently is also offering the UK a very attractive free trade deal once they leave the European Union.  


The Italian debt situation is also once again raising its ugly head and the Italian Government is suggesting to Brussels that instead on focusing on raising in Italy’s debt, they want to decrease taxes to stimulate the economy. The major impact on the European bond market has been that rates continue to slide into negative territory with the German 10-year Bund yielding minus 0.224% and countries from Austria, Bulgaria, Spain and even Portugal follow into the negative rates.