AFEX Market Watch - 16th October 2019
What Happened Yesterday
• RBA meeting minutes from two weeks ago revealed that the bank remains concerned about employment and inflation. Economic growth is too weak to see a turnaround in either measure soon. The market firmed up the odds of further rate cuts in November and February that will take the cash rate to 0.25%. Following on from this the only tool available becomes quantitative easing.
• AUD declined after the International Monetary Fund slashed its forecasts for global economic growth, primarily because of the Sino-American trade war. The fund reckons world GDP will grow by just 3% in 2019, 0.3 percentage points less than it forecast six months ago. That will make it the slowest rate of expansion since the great recession of 2009.
• Ireland’s prime minister, said Brexit talks were “moving in the right direction” ahead of a make-or-break summit in Brussels on Thursday. The main obstacle remains how to keep the Irish border open while taking Britain out of the EU’s customs union. Even if a deal is agreed, it will still need to be passed by Britain’s parliament. AUDGBP dropped to the lowest level since June 2016.
Major Risk Event
China continued to feel the effects of the trade war as evidenced by a disappointing set of inflation data. The Consumer Price Index (CPI) increased by the most in three years, but only because of a spike in pork prices caused by the swine flu epidemic. The core number was just 1.5%. The Producer Price Index (PPI) was the worst for three years, a reflection for export demand.
• Economists expect that US retail sales values have continued to grow, tipping a 0.3% expansion last month. But, consumer confidence has been falling steadily suggesting that Americans have been reluctant to get their wallets out. A strong number would encourage the Fed that the rate hikes that have already been made have had the desired effect.
• Brexit negotiators on both sides are in a race against time to finalise a blueprint for the solution for the Irish backstop. They must finalise this tonight in order for it to make the agenda for talks on Thursday and Friday. With the Brexit deadline just 15 days away, there remains a lot of work to do. A key economic indicator, inflation, is also out but the Pound is not being driven by data.
• AUDNZD remains within a cent of an eleven month high ahead of the New Zealand inflation number. The prediction is for CPI to remain at 0.6% q/q which would put half-yearly inflation at a twelve month high. The Reserve Bank of New Zealand will pat themselves on the back for their three rate cuts being well timed and effective – the RBA will not be as optimistic.