Daily Commentary BY THE CURVE TEAM –

Markets on Edge as Virus Spreads

28th of January, 2019

Markets are starting to price in the potential fallout from the spread of the Coronavirus with big moves over the weekend.

The spread of the Coronavirus in China and to the rest of the world has seen markets sharply re-price risk over the past 2 sessions. Equities have fallen sharply in the US from their all-time high and the Australian market is expected to be hit when it re-opens today.

Interest rate markets have also been on the move with yields plummeting. US 10-year yields have fallen sharply, with Australia’s yield curve also significantly impacted. While the back end of the curve is much lower, the outlook for the cash rate is little changed since the move on the back of last week’s employment numbers.

Stronger than expected overall jobs growth and the slight fall in the unemployment rate has the market anticipating the RBA to hold fire in February. However, that doesn’t mean that this week’s important data releases should be overlooked.

Today we will get the latest monthly business survey which is an important guide for the economy. It will be important to see how confidence has evolved since the end of last year, while the employment index will be crucial to the near-term outlook.

Tomorrow’s inflation data is expected to confirm that inflationary pressure remain low in Australia. While this may not necessarily change the markets expectations for a February move by the RBA, it will feed into the RBA’s updated forecasts due out next Friday.

David Flanagan

Director - Interest Rate Markets