Financial Market Conditions

Over the past month the ongoing trade dispute between US and China coupled with a more dovish interest rate outlook by the US federal reserve created volatility in financial markets around the globe.

The ongoing trade dispute between the United States and China dominated headlines and drove the direction of financial markets in November. Mid-month, US President Trump announced the possibility of placing tariffs on an ever-increasing range of Chinese goods including phone and motor vehicles, in an effort to bring Chinese leaders to the table about the protection of intellectual property rights of US industry. The dispute has seen many commentators downgrade their outlook for global growth and has forced the US federal reserve to remove a number of rate hikes from their rate forward projections. US President Trump and Chinese President Xi meet at the G20 conference in late November / early December and made some progress on resolving the trade dispute. After the meeting, US and Chinese media reported that the US president had committed to delay further tariffs for 90 days after the Chinese agreed to buy significant amounts of American goods.

us trade graph

The United Kingdom has negotiated an agreement with the European Union regarding their exit from the union but it has yet to be signed off by the British parliament. UK treasury staff have warned British politicians that the country could be forced into a recession if a ‘hard’ Brexit is enacted.

Australian financial markets also experienced volatility over the past month. The Australian unemployment rate held steady at 5% in October after another 32,800 jobs were added and left the rate at its lowest level since April 2012. Auction clearance rates in Sydney and Melbourne continued to decline over the past month as the lower migration, increased supply and a mini credit crunch resulting from the Bank Royal Commission made a noticeable impact. The Australian dollar has been relatively stable over the past month and is currently trading at around $0.74 USD.

The Reserve Bank (RBA) met in early November and left the official cash rate unchanged at 1.5%. The statement that accompanied the decision paints a positive view of economies around the globe as many are experiencing strong levels of economic growth during a period of low inflation, interest rates and unemployment. The Governor also highlighted Australia’s recent strong gross domestic product data and our positive labour market. Current interest rate futures market pricing predicts that the cash rate will be on-hold for at least the next twelve months.

Implied RBA Cash rate as at 30/11/2018:

rba rate graph