ABX Weekly 25/09/2019

Market Update  

 

The US political turmoil, with a possible impeachment of Trump is casting it’s shadows over the global economy.  In the recent speech to the UN assembly Mr Trump is calling an end to globalisation and he was stressing that patriotism is the new way of live! 

This of course does not help to ease the global tension on trade and the news that a Chinese trade delegation cancelled a planned visit to U.S. farms on Friday caused an outbreak of trade pessimism among investors. It has transpired that the cancellation of the proposed visit was not due to a worsening of relations between the two sides, but rather a request from the U.S. not to go. China’s Ministry of Commerce called the meetings held in Washington “constructive” while the U.S. Trade Representative’s office said they were “productive.” President Donald Trump said he doesn’t want a partial agreement with Beijing, and is seeking a “complete deal.” 

Not surprisingly, we have seen global bond yields falling strongly again on the back of these uncertainties and the ball is once again in the corner of the Central Bankers to ease tension with the US Fed decreasing rates just recently and the ECB starting to print money again. 

In Australia we are following this trend and the market has priced in already a further decrease in official rates when the RBA meets next in early October. This view was strengthened by yesterday’s speech by the RBA Governor and the release of weaker unemployment rates last week has put the A$ once again under pressure. 

Our bond rates have followed the global trend with the 10y Government bonds falling from a recent high of 1.20% to currently 0.96%.  

European Desk 

 

Nobody was too surprised last weeks with the release of weak factory orders out of the German powerhouse economy and the markets did not react with the EUR/US$ steady at 1.10. 

Factory activity in Germany shrank at the fastest pace in a decade, with the country’s manufacturing PMI plunging to 41.4. IHS Markit, the report’s compiler, said that the euro-area’s largest economy may struggle to record any growth at all this year. A composite PMI for the common-currency area fell to 50.4, below estimates and the weakest level in more than six years. The dismal reading has hit the region’s markets this morning, and it’s likely to increase calls for a fiscal boost from national governments. 

What did surprise was the decision by the Swiss National Bank not to follow the ECB and Mr Jordan did not decrease official rates further into the negative. This usually has put upward pressure onto the Swiss Franc however so far there has been little movement and there are plenty of rumours around the market that the SNB is once again expanding it’s already gigantic balance sheet.