Daily Commentary BY THE CURVE TEAM –

Trade War to Wage on as FOMC Announcement Looms Large

26th of September, 2018

In two seperate appearances overnight, the US Administration reaffirmed that the trade war is far from over. Meanwhile markets remain quieter than normal as the FOMC’s two day meeting gets underway.

The markets rather muted response to the latest escalation of the trade war between the US and anyone they have a trade deficit with is set to be tested over the months ahead. In seperate appearances overnight, both President Trump and his trade representative, Robert Lighthizer reaffirmed their desire to seek a better deal for America.

Trump used his address to the UN to push his agenda on trade, saying “America is governed by Americans. We reject the ideology of globalism, and we embrace the doctrine of patriotism.”

He went on to say “We will no longer tolerate such abuse. We will not allow our workers to be victimised, our companies to be cheated, and our wealth to be plundered and transferred.”

The same rhetoric was seen in Lighthizer comments overnight where he focused on the prolonged efforts by many administrations to negotiate with the Chinese around intellectual property and a better deal for US companies. After pointed out the failed attempts to date, he reaffirmed that the US administration is resolute in its desire to get a result.

So as the trade war wages on, it is only a matter of time until its effects start to show up in the data and markets sit up and take notice.

Speaking of markets and it was a relatively quiet night again as the FOMC’s two day meeting got under way. Interest rates continue to drift higher going into the meeting while equities were a little softer and most major currencies, outside of the GBP, gyrate in a tight range.

We now await the FOMC’s announcement at 4am AEST. With a hike largely fully priced, the focus will be around the updated dot plots and more importantly the language used around the outlook for monetary policy. The words to look out for are accommodative and neutral rate and how the outlook is articulated relative to these assessments.

David Flanagan

Director - Interest Rate Markets