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AFEX Market Watch - 23rd August 2019

What Happened Yesterday
• New unemployment-benefit claims in America fell by more than expected last week. Meanwhile IHS Markit’s manufacturing purchasing managers’ index for America fell below 50 in August—a level indicating flat output—for the first time since 2009. That frightened markets. America’s bond yield curve inverted again—a sign investors fear that America is headed for recession.

• AUD declined thanks to the risk-off sentiment that swept the markets after the US curve inverted. Commodity prices continued their decline with iron ore leading the way in the wake of BHP’s reduced outlook from Tuesday. Liberium Capital was the latest institution to cut its price target – from $90 to $75 a ton for H2 2019 and then $50 in 2020.

• France’s President Emmanuel Macron  told Boris Johnson, Britain’s prime minister, there was not enough time over the next month to negotiate an entirely new withdrawal agreement with the European Union. Mr Johnson wants the agreement’s Northern Irish backstop scrapped entirely; Mr Macron called it “indispensable” if the EU is to maintain the integrity of its single market.

Major Risk Event
China has threatened ‘countermeasures’ on trade. “If the U.S. obstinately clings to its own way, China has no choice but to take corresponding countermeasures,” Ministry of Commerce Spokesman Gao Feng said. He added that “The US should change its wrong actions”. Meanwhile a slew of goods will be attracting a 10% US tariff on September 1st.

Today’s Agenda
• Federal Reserve Chairman Jerome Powell will speak at the Jackson Hole symposium tonight and is expected to provide support for an interest rate cut at the Fed’s next meeting on September 18th. Powell will be keen to reassure the markets without contributing to pessimism or appearing to cave into recent demands from Trump – it is mission impossible.

• The G7 meetings between the leaders from Canada, Italy, France, Germany, Japan, the UK, and the US will take place in France. Last year ended in disarray, with President Donald Trump tweeting against his “very dishonest and weak” Canadian host and refusing to endorse the final communiqué. There is a real possibility that Trump will threaten tariffs on French wines this time.

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