Daily Commentary BY THE CURVE TEAM –

Trump Tweet Highlights Hurdle for Trade Deal

5th of December, 2018

Markets found themselves in a funk overnight as the realisation that a trade deal is still some way off. Meanwhile the RBA’s post meeting statement made for interesting reading.

Equity markets were in a funk, the US dollar was stronger and bonds rallied leaving yields lower, as the realisation that a trade deal between the US and China is still continuing to sink in. Trump did little to help the situation, calling himself Tariff Man in a chain of tweets which really need to be read in full:

“The negotiations with China have already started. Unless extended, they will end 90 days from the date of our wonderful and very warm dinner with President Xi in Argentina. Bob Lighthizer will be working closely with Steve Mnuchin, Larry Kudlow, Wilbur Ross and Peter Navarro on seeing whether or not a REAL deal with China is actually possible. If it is, we will get it done. China is supposed to start buying Agricultural product and more immediately. President Xi and I want this deal to happen, and it probably will. But if not remember I am a Tariff ManWhen people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAINBut if a fair deal is able to be made with China, one that does all of the many things we know must be finally done, I will happily sign. Let the negotiations begin. MAKE AMERICA GREAT AGAIN!”

Trump is clearly playing the game in trying to get China to the table to do the deal that he wants. The Chinese aren’t too happy about it so I expect we will see plenty more volatility during this negotiation period.

Adding to the pressure on markets was a firmer tone from New York Fed President John Williams. While he acknowledged there were some risks on the horizon, on balance he sees still sees the case for further rate hikes ahead.

The same can’t be said for our central bank. The RBA left the cash rate on hold yesterday but their statement was quite interesting. While the positive undercurrents were still present, there was a far more neutral overlay becoming more apparent.

We aren’t quite there yet but the RBA seems to be slowly walking back from their panglossian central scenario to a far more cautious outlook. If the current domestic and international trends continue into the new year we are likely to see a far more neutral rhetoric from the RBA.

David Flanagan

Director - Interest Rate Markets