Daily Commentary BY THE CURVE TEAM –

Markets Under Pressure As Headwinds Converge

28th of June, 2018

It was another rough night for global markets as headwinds from a number of fronts converge. The US administration attempted to bring calm to the situation, walking further back from its hardline stance on foreign investment but the growing headwinds to the global outlook eventually overwhelmed markets.

The outlook for the global economy continues to darken as headwinds from a number of fronts converge. As a result there were heavy losses on equity markets again overnight while the USD and Bonds were the major beneficiaries of deteriorating outlook.

Contagion of the stress seen in emerging markets over the past few weeks into Chinese markets has caught the markets attention. The Chinese Yuan has been under intense pressure and it has started to impact equity markets which have broken lower in recent days.

The rising USD, rising US short term interest rates and the continued unwinding of the Fed’s balance sheet is causing havoc for emerging markets and the situation is expected to continue.

The war on trade is doing little to help the situation despite the US Administrations attempt to back track a little on foreign investment overnight.

Even with the moves in recent days, the situation still appears contained. However there is a growing risk that we are on the precipice of another spike in volatility and it is unlikely to be to the upside.

The deterioration in the global outlook and a RBA that has made it clear it is in no rush to move rates has seen the market pricing for a rate hike continue to fall. There is now no move priced in this year or next.

David Flanagan

Director - Interest Rate Markets