Daily Commentary BY THE CURVE TEAM –

Economics Vs Politics as Silly Season Kicks Off

4th of December, 2017

The silly season got into full swing on Friday as we entered the final month of the year, the effects of which permeating through both markets and politics. After an extended run of extremely low volatility over recent months, the wild swings experienced Friday night could just be a taste of things to come.

Politics stole the headlines on Friday night with an admission of guilt from former NSA Michael Flynn sending markets into a tailspin. President Trump then did himself no favours, throwing himself under the bus in a series of tweets suggesting that he was aware that Flynn had lied to both the Vice President and the FBI. It seems that the President’s links to Russia throughout his campaign will continue to plague the current administration for a little while yet.

Markets managed to recover as the Senate’s tax plan continued to gain momentum and was on the verge of being passed. While it wasn’t officially passed during open trade on Friday, an extended session saw the proposed legislation get up 51-49. With the house already passing their tax plan, it is now up to a committee to reconcile the two plans to appease both houses before it can move forward for the President to sign it off.

Across the Atlantic and the Brexit negotiations are reaching another deadline today with only one major sticking point standing in its way. The EU continues to push for a hard boarder between Ireland and Northern Ireland, something which the Democratic Unionist Party, who currently prop up UK Prime Minister Theresa May’s Government currently oppose.

Throw into the mix the largest ever war games being conducted on the Korean peninsula by the Allies and you have plenty of Political and Geo-Political dramas to keep an eye on this week.

Adding to the raft of issues above, there is plenty of data and events to keep an eye on this week as well. Data wise the week will conclude with the non-farm payrolls report in the US. Before we get to that, there will be plenty of PMI’s from around the globe as well as GDP revisions.

Speaking of GDP, the ABS will reveal Australia’s latest growth figures on Wednesday where the market is currently expecting growth the annual rate to lift to 3.0% on the back of growth in Q3 of 0.7%. The data will follow a raft of monthly indicators to kick off the week, culminating in the RBA’s December board meeting on Tuesday afternoon.

Also on monetary policy, it is worth keeping an eye on the Bank of Canada who will also decide on its policy setting this week. While no change from either central bank, the strong employment data Friday night in Canada will have the market closely watching the outcome of the BoC meeting.

It all adds up to a huge week with the silly season firmly underway.

David Flanagan

Director - Interest Rate Markets