Australian Bond Exchange

ABX Weekly

14th November 2018

Market Update

Global jitters remain. Markets remain concerned about Brexit negotiations, tariffs, tech stocks and Trump
tweets. Headlines today showed British and European negotiators have moved closer to a Brexit ‘divorce’ deal that will extract the UK from the European Union. But prime minister Theresa May now faces a tough fight to sell its merits to her Cabinet and to parliament and several difficult hurdles remain before anything is finalised and signed.

Wall Street’s major indexes declined, with the S&P 500 weighed by technology and financial stocks as shares of Apple and Goldman Sachs came under pressure. Apple shares fell 4.7 per cent and Goldman Sachs shares dropped 7.2 per cent, both dragging US indices down. Apple shares fell to their lowest in more than three months as three suppliers to Apple issued warnings about demand from their “largest customer” suggesting weakness in iPhone sales. Goldman Sachs share price dropped as a dispute emerged between Goldman and the Malaysian government over advice given and fees paid for arranging billions of dollars of deals for troubled Malaysian state investment fund 1MDB.

The Dow Jones Industrial Average fell 2.12 per cent, the S&P 500 lost 1.76 per cent the technology-heavy Nasdaq Composite dropped 2.53 per cent.

On the commodities front, oil prices declined as investors fled a market hammered by swelling excess supplies and a darkening demand outlook. US President Donald Trump’s took to Twitter to critique Saudi Arabia, the world’s biggest crude exporter for its plan to curb output in a matter of weeks.

Trump’s introduction of tariffs against Chinese imports now means the scale and coverage of the US tariffs has increased and broadened as the year has progressed. Presently, there is a 10 per cent tariff covering $US200 billion of China’s exports. The rate is scheduled to rise to 25 per cent in January and the Trump administration has threatened to slap tariffs on another $US257 billion of China’s exports by the end of the year. But on a positive note, the steps taken by Chinese Vice Premier Liu He and US Treasury Secretary Stephen Mnuchin to reengage in talks is a considerable step forward.

The strong US economy is keeping the Federal Reserve leaning towards higher interest rates. As expected, the Fed left rates unchanged at the conclusion of the FOMC policy meeting last week but the Fed gave no reason to doubt their resolve to continue raising rates at a gradual pace. Another rate hike is factored in for December as the Fed looks to cool the US economy.

Additionally, rising longer-term bond yields gives the Fed a green light to continue pushing up policy rates. If the long end of the yield curve starts moving up in lock step with the short end, concerns that the yield curve will invert — a traditional sign that a recession looms — become less salient. Bond markets are telling the Fed the economy needs higher rates to stay balanced. The Fed will be happy to deliver.

With this global uncertainty continuing, bonds issued by listed, financially sound, Australian corporates remain a defensive asset delivering strong consistent returns at low risk. Get in touch now to see how we can help you protect and grow your wealth.

European Desk

The European headlines continue to be dominated by the showdown between Rome and Brussels and the never-ending Brexit talks with the British and EU teams reported to be close to agreeing a draft withdrawal agreement. However, Theresa May’s concession puts her under strong pressure within her own party at home and her time as the English leader is looking very shaky. Economic news out of the UK however is looking strong with wages growing at the highest rate since 2008 in the quarter to September, with unemployment rates just over 4%.

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With the wild share market, you’ll need to minimise any losses by diversification. Property and hybrid securities just don’t cut it anymore. Call an advisor on +61 2 8076 9343 or visit our website now!

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Find the weekly here: ABE weekly 14th November 2018

We cover Brexit, tech stocks and Trump. How Apple and Goldman Sachs came under pressure and Wall St indexes declined.

ABX weekly market insights

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