Australian Bond Exchange

ABX weekly 27/02/2019

Market Update 

Wall Street’s three major indexes are slightly lower after a choppy session as investors eyed mixed US economic data, corporate news and waited for clarity on issues such as the US-China trade talks.

Lower-than-expected housing data contrasted with a better consumer confidence report, while Home Depot was among the biggest drags after the home improvement retailer blamed bad weather for missed Wall Street forecasts.

Federal Reserve chairman Jerome Powell told a US Senate Banking Committee that the central bank would remain “patient” in deciding on further interest rate hikes and that rising risks and recent soft data should not prevent solid growth for the economy this year. Market is concerned he is all talk and won’t follow through with additional hikes.

Australian shares have fallen across the board, led lower by the tech sector giving back the gains made a day earlier. After a tumultuous week in Aussie markets, it was evident conviction was quite low and markets are happy to reassess the bigger picture before committing to the next trade. 

This uncertainty has seen large flows in safer assets to diversify their portfolio. Investment bonds are a great portfolio stabilizer. Call your advisor today so you don’t be the last one to protect yourself.

European Desk

The mixed signals from the European economies keep on coming as the recent release from the IHS Markit’s Flash Composite Managers Index (PMI) indicated that the Eurozone remained close to stagnation in February. The flash PMI lifted only slightly higher during the month, continuing to indicate one of the weakest rates of expansion since 2014. The weakness is being led by manufacturing and factory order books which continue to deteriorate.

On the flip side, UK retail figures were positive, increasing in January with year-on-year retail sales increasing by over 4%. This is in stark contrast to the political saga around the Brexit issues which took a new twist this week with the UK opposition Labour Leader, Jeremy Corbyn bowing to pressure from his members of parliament and agreeing to support a new Brexit referendum.

An excellent stress indicator is the Euro/Swiss frank cross rate, with the Swiss frank weakening slightly which indicates to us that the financial markets are not too worried at this stage. What we are most amazed is the fact that a big part of the European Government bond space is in negative rate territory again and stock markets have had a very big rebound to near record highs.