Daily Commentary BY THE CURVE TEAM –

Uncertainty Rising: Trade Wars, OPEC and the RBA

20th of June, 2018

Uncertainty continues to be the dominant theme with tensions rising on a number of fronts overnight. President Trump stepped up his war on trade overnight while OPEC members continue to position themselves ahead of this weeks meeting. Meanwhile the RBA left out a crucial line in their June meeting minutes as the ABS confirmed house prices are falling.

Markets went into a tailspin yesterday as it emerged that President Trump has another $200bln in tariffs on Chinese imports at the ready. China has made clear that they stand ready to respond to whatever the US throws at them and with India and Russia announcing their own response, the risk of a full blown global trade war continues to rise.

The positioning ahead of the OPEC meeting has continued overnight and continue to cast a shadow over the outlook for prices. The Russians continue to push for a large increase in the level of production while others like the Iranians are pushing back at even a modest increase. The Saudi’s will have a tough job on their hands to keep everyone happy while still maintaining control and keeping OPEC together.

The RBA released the minutes from their June meeting and the bulk of it continues to contain their glass half full perspective on the majority of risk that their outlook faces. However one key line was missing in the considerations for monetary policy. The reference to the next move in rates being up, as seen in other recent communiques was missing.

The weakness in the housing market, as seen in the monthly CoreLogic house price index, housing finance and auction clearance rates, was yesterday confirmed by the ABS. Their quarterly 8 city house price index posted a fall of 0.7% for the first quarter. Sydney posted the biggest decline and with prices now falling for the past three quarters.

The absence of major data means markets will continue to take their lead from the headlines as details from the ongoing trade war and upcoming OPEC meeting continue. However locally the focus will be on funding markets as ongoing tightness continue to push up short end rates.

David Flanagan

Director - Interest Rate Markets