Daily Commentary BY THE CURVE TEAM –

China & North Korea Talks Overshadow Key Data

29th of March, 2018

The price action overnight continue to portray a theme of uncertainty. This  overshadowed some positive data out of the US, which supports the Fed’s path for interest rates.

Precariousness was once again evident overnight as equity markets continue to whipsaw in and out of the red, while in the bond market, US 10 year Treasuries have continued to trade below 2.80%.

Ongoing geopolitical tensions seem to be the main catalyst for such moves and this doesn’t look to be letting up anytime soon.

News out of China overnight was that North Korean leader Kim Jong Un met with Chinese President Xi Jinping. It is reported that China want to maintain friendly ties with North Korea, which could complicate the upcoming US-North Korea talks

Geopolitics overshadowed the Q4 revisions of US GDP, of which was revised up to 2.9% from 2.5% on the back of strong consumer spending and corporate profits. With the Fed indicating that at least 2 more hikes are on the way this year, this revision could be seen to support the case for a third.

Importantly for Australia,  the positive growth story of the US coupled with the hawkish Fed is putting pressure on the AUD as yield spreads widen. The AUD/USD has dropped from highs of over 0.80 in January to now sit below 0.77.

While there is nothing pointing to a shift in sentiment, the RBA has repeatedly mentioned that a weaker currency is beneficial to returning inflation to the target band.

Today we have Credit data for February domestically while the highlight offshore will be inflation data out of Germany. This will lead in nicely to the Eurozone CPI due out next week.

Oliver Parsons

Client Relationship Manager