Daily Commentary BY THE CURVE TEAM –

Fears Of Global Slowdown Grow

15th of January, 2019

Recent widespread fears of a global slowdown have been fuelled further by the release of international data over the last 24 hours.

It kicked off yesterday’s weaker-than-expected Chinese trade data yesterday caught the market by surprise.

China’s imports came in at -7.6% y/y, severely undershooting expectations of +4.5%. Exports were also soft coming in at -4.4% y/y, against expectations of +2.0%. Although the trade war has had some impact on China’s trade, the weak data is also a result of slowing activity globally, with weaker exports to the Eurozone as well as the US.

One of the reasons for the fall in European exports could driven by a slowdown in the Eurozone manufacturing activity. Industrial production in November for the Eurozone fell sharply, dropping 1.7% from the previous month. It comes on the back of a collapse in a number of key Eurozone member’s PMI’s last month, including Germany’s.

We also got some domestic data yesterday with the Melbourne Institute their private monthly inflation gauge for December.

According to the monthly data inflation rose 0.4% December to lift the annual rate to 1.9% , just below the RBA’s target band of 2-3%. While they don’t have a perfect correlation the MI measure suggest that the ABS inflation read for Q4 could undershoot the RBA’s current expectations.

Despite the low inflation outlook and recent softening data, it is still likely not enough to push the RBA towards cutting rates, even if the market is currently pricing a 50% chance of a cut by year end.

Neyavan Suthaharan

Client Services Officer