Daily Commentary BY THE CURVE TEAM –

China Fires Back as Trade War Escalates

14th of May, 2019

After the US Administration upped the ante in the trade war last week, the Chinese have fired back with markets hit as a result.

It didn’t take too long for the Chinese to announce countermeasures to the US escalation of the trade war last week. Late yesterday evening local time, the Chinese announced an increase in tariffs on $60bln of US imports and it sent markets into a spin.

Equity markets, especially the tech sector, were hit hard while safe havens such a government bonds were highly sought after, driving long term interest rates lower. The USD was generally stronger across the board with commodity currencies, such as the AUD, hit on concerns over the escalating trade wars impact on global growth.

This is something that the RBA warned about in their Quarterly Statement on Monetary Policy last Friday. They said that “over the past three months, the global growth outlook has been revised slightly lower and the risks remain tilted to the downside.”

More specifically and prior to the escalation over the past few days, they said “the outlook for trade policy remains uncertain and negative developments could harm global growth.” The one upside for the RBA and the Australian economy is that the fall in the AUD will soften the blow a little from deteriorating global outlook.

Later today we will release the Curve Monthly insights which will delve deeper into what the RBA had to say last Friday and how it has changed the outlook for Monetary Policy.

David Flanagan

Director - Interest Rate Markets