Australian Bond Exchange

ABX weekly 23/01/2019

23rd January 2019

Market update 

There is a risk-off tone in financial markets at the moment. Globally equities were down. Aussie equities followed Wall Street lower last night taking back some of the gains this week.

Several central bank meetings are taking place this month with the US Federal Reserve meeting at the end of the month, the Bank of Japan meeting today and the European Central Bank on Thursday.

Markets were unsettled by comments from Chinese President Xi Jinping about the deteriorating state of China’s economy. President Xi warned of potential social instability if China failed to regain control of its economy and deliver the growth required to keep satisfied the nation’s people a concerning sentiment coming from the world’s second-largest economy.

Added to this negative sentiment was that US-China trade negotiation progress had slowed especially on the issue of intellectual property.

The UK’s Brexit drama continues but some good economic news was released showing a fall in the unemployment rate (to 4%) and a rise in wages (+3.4%). The yield on US 10-year Treasuries sank four basis points to 2.78%, the largest tumble in more than a week. The yield differential remains between US and Australia with a 2-year yield: US 2.58% vs Australia 1.84%; a 5-year yield: US 2.58% vs Australia 1.95%; 10-year yield: US 2.78% Australia 2.30%.

The World Economic Forum, the annual gathering of global leaders in politics, business and culture, opens in Davos, Switzerland on Tuesday.