Daily Commentary BY THE CURVE TEAM –

Funding Market Focus as EOFY Closes In

25th of June, 2018

As we head into the last week of the financial year the lack of domestic data means the focus will remain on whats happening offshore and there is plenty to watch.

The key local data to watch for this week won’t be out until Friday but it will be worth taking note of. I highlighted this last week, the divergence between the growth in broad money and credit growth. We will get an update when the RBA releases their credit aggregates at the end of the week.

Persistent tightening of funding markets and the resulting increased funding costs continues to impact ADI’s with two more lenders announcing out of cycle rate hikes. So far we have only seen two regionals and two mutuals announced lending rate increases and more are expected to follow. It could be a tricky week to do so though with the next round of the Royal Commission getting started.

Offshore and Trump was at it again on Friday before tweeting again this morning on more tariff action. He said on Friday that Europe is now in the firing line, saying:

“Based on the Tariffs and Trade Barriers long placed on the U.S. & its great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!”

He then doubled down saying:

“The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!”

With the already announced tariff on China and the Chinese retaliatory measures set to kick in at the end of the next week, the ongoing trade war narrative isn’t going to end any time soon. The question is where is the tipping point for markets who seem far too calm at present?

Finally the highly anticipated OPEC/Non-OPEC meeting was seen as a little disappointing. After all the arm wrestling and draw out negotiations there was eventually an agreement. However due to a lack of compliance and other supply disruptions the actual amount of new supply to reach the market will reportedly be around 600m bpd. As a result oil spiked higher, unwinding most of the pre meeting weakness.

David Flanagan

Director - Interest Rate Markets