Daily Commentary BY THE CURVE TEAM –

Markets Not Convinced by Trade Truce

22nd of May, 2018

Its now been 24 hours since markets first got the opportunity to digest the news of a trade truce between the US and China and it seems that not everyone is convinced. News out of Europe on both side of the channel seemed to overshadow the price action in many ways overnight.

The market reaction to the news out of the US-China talks suggest that the announcement has been seen as more of a truce that a step forward. Comments from both sides since the release tend to support that view and further progression will be needed to appease the market that a trade war has been scuttled.

Commodity currencies, including the AUD, were the main beneficiaries overnight. Equity markets really failed to go on with the physical markets, moving in line with where futures markets opened the week. Interest rate markets were quiet in the US while news across the Atlantic saw some interesting price action.

The Euro was hammered in early trade as the new Italian government continues to cause headaches for the European Union. In order to deliver on its pre-election promises the government mooted the possibility of issuing a new class of short dated government bonds. They would effectively be like a parallel currency and could in theory circumvent strict EU rules.

Across the Channel and Brexit looks as messy as ever. Talks resume this week and it appears little progress has been made on the current impasse over the Irish boarder situation. The possibility of early elections didn’t help either.

With little in the way of data out over the next 24 hours, geopolitical events are likely to continue to drive markets.

David Flanagan

Director - Interest Rate Markets