Australian Bond Exchange

ABX Weekly 30/10/2019

Market Update  


Global Financial markets are starting to respond to the massive stimulation by Central Bankers around the world. We have seen the US stock markets hitting new all-time highs and bonds yields moving higher across the globe. Even bond rates in Europe are moving slowly back towards zero, however many are still showing negative yields with the German 10 years Bund moving from negative 0.70% closer to negative 0.30%. 

Here in Australia we are getting closer to Melbourne Cup day and most market commentators are not expecting the RBA to cut rates and some are expecting the next cut more likely in February. However, the public criticism about the recent move by our central bank is increasing with former ANZ Chairman Charles Goode recently questioning publicly the effectiveness of the recent moves. This clearly is putting the ball back into the Governments corner and the pressure is mounting for some sort of tax cuts to take over the heavy lifting. The Australian consumer in the meantime is not very impressed and consumer confidence continues to fall. 

The U.K. will hold an emergency election in six weeks’ time, in a critical stage that will hopefully decide which direction the country is heading. Prime Minister Boris Johnson won backing in Parliament to trigger the snap vote to resolve the Brexit crisis that has incapacitated the country’s politics, weighed on its economy and left its citizens angry and divided. The vote will be held just before Christmas on the 12th of December but uncertain whether U.K. is on the naughty list this year for nice present or a lump of coal. Suffice to say this is an unprecedented political and constitutional upheaval which brings uncertainty to an already volatile market. The election may now turn into a proxy referendum on Brexit, the last chance for voters to choose between politicians campaigning to stay in the EU or leave it immediately.  

The Fed is all but certain to cut rates for the third time in a row this week. More of a question is the tone the Fed Chairman, Jay Powell will deliver it. The market consensus is that it will be wait and see with data analysis key for any forward guidance. The data is already supporting a rate cut with third-quarter GDP data slowing to an annualized 1.6% from 2.0%.