Daily Commentary BY THE CURVE TEAM –

Uncertainty Over Global Outlook Important For Domestic Monetary Policy

8th of February, 2019

For the past week, the main focus has been on the RBA’s outlook based off domestic factors. However, ongoing uncertainty around the globe is also key with Lowe stating that “what happens overseas has a major bearing on what happens in Australia”.

In his speech on Wednesday, Governor Lowe stated that growing downside risks on the domestic front have given rise to a more balanced outlook. However, he seemed more concerned about increasing uncertainty around the globe:

“What is of more concern, though, is the accumulation of downside risks. Many of these risks are related to political developments: the trade tensions between the United States and China; the Brexit issue”

In the US, the political tension continues with officials saying that a meeting between Trump and President Xi before the March 1 trade deadline being “highly unlikely”. What this means is that even if a deal is reached between the two parties, it won’t be as wide ranging as the US would like.

With the Brexit deadline approaching in 50 days, signs of a deal appear increasingly unlikely as both sides exchange frustrated comments at each other. Adding this to the soft data Europe has seen so far, there is much uncertainty about where the Eurozone is headed.

In the midst of all this, the continued silver lining is the strength of the US economy with a strong non-farm payrolls report last week and jobless claims in early February dropping 19k. Despite the FOMC leaving rates on hold at their most recent meeting, Chairman Powell still thinks that “the US economy is now in a good place”.

Now, we look ahead to the updated forecasts in Statement on Monetary Policy released later today. Although we don’t expect many surprises following the post-meeting statement on Tuesday and Lowe’s speech on Wednesday, it will interesting to see the figures for the newly expanded list of variables.

Neyavan Suthaharan

Client Services Officer