Daily Commentary BY THE CURVE TEAM –

Geopolitical Risks Spreading

25th of May, 2018

Rather than subsiding, geopolitical risks are intensifying and spreading at the same time. The market seems to be ok with it for now which increases the risk of another volatility spike at any moment.

There has been some known geopolitical risks for sometime that the market has been accustomed to. The instability in the Middle East has been simmering away for some time and as such has only really been impacting oil markets.

The instability in the Asian region has been on a little more of a rollercoaster of late. The US continues to lock horns with both China and North Korea on seperate fronts and it seems these are intensifying. Trump last night sent an open letter to North Korea, pulling out of the June summit. He has also reignited the trade war with talk of car tariffs of 25% this time.

Then there is the re-emerging front of geopolitical uncertainty in Europe, this time centred in Italy. The noises the new Italian government have made so far have caused some concern across other members of the EU. A number of European leaders has urged the Italian Government to remember that they are part of a broader common union. However they appear to be putting themselves and their people first.

It all added up to increased uncertainty and with it downside risks. It comes at a time when the global data pulse outside of the US and China is weakening and emerging markets are under intense pressure.

In the words of our own RBA, be alert, but not alarmed, just yet anyway.

David Flanagan

Director - Interest Rate Markets