Daily Commentary BY THE CURVE TEAM –

Markets Ebullient in the Face of Growing Uncertainty

9th of July, 2018

There is uncertainty on a number of fronts to cloud the global outlook but you wouldn’t know it judging by the price action Friday night. That is making the local outlook even more complicated.

Markets were in an ebullient mood Friday as the US economy continues to produce solid jobs growth without driving up wage growth. The nonfarm payrolls report posted another 213,000 jobs in June, ahead of estimates, while the household report showed the unemployment rate edged up to 4%.

They key for the outlook remains wage growth which rose 0.2% for the month, just short of estimates, with the annual rate remaining steady at 2.7%. The data reignited the debate over just how many more hikes we will get from the Fed this year. Two more still remains likely unless the data deteriorates materially or markets get into a funk.

The ebullient mood, which saw equities rise and the USD fall came despite uncertainty remaining on a number of front. Those uncertainties are bonds remain bid and yields on longer dated US Treasuries and other bonds fell.

The trade war got underway and there was little reaction at the time from markets. Reports have surfaced over the weekend President Trump could go as far as to apply tariffs to all Chinese Imports. Then there is growing disquiet in North Korea over the agreement with the US over the push for their denuclearisation. Add in that the Brexit secretary David Davis has resigned this morning and Theresa May’s latest plan is expected to be rejected and markets look a little complacent to me.

On the local front there will be some timely data this week. We get the latest business and consumer sentiment survey’s this week. The later will be important to see if the slowing housing market is starting to impact consumer sentiment. On that front, the latest housing finance figures will also be out.

Finally, tomorrow will see the release of our latest monthly insights where we will take a look at the developments on the domestic front and what it means for interest rates.

David Flanagan

Director - Interest Rate Markets