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AFEX Market Watch - 20th February 2019

What Happened Yesterday
• AUD rallied on growth optimism as America and China began a new round of talks in Washington, aimed at resolving the countries’ trade war. Meetings between the pair in Beijing last week made little concrete progress, although both sides agreed they were positive. Without a deal, America is due to raise tariffs on $200bn-worth of Chinese imports from 10% to 25% on March 1st.

• Walmart, America’s largest retailer, reported stronger than expected Q4 results and released positive forward guidance. This suggests that last week’s terrible US retail sales figures were either an anomaly or erroneous. Markets had further priced out the chance of a rate hike after a Fed member had said this could be critical for the economic and monetary policy outlook.

• Pound was the strongest of the major currencies on reports of productive Brexit talks between the UK Prime Minister and the European Commission President. The latter said that he would be open to Britain applying to extend its deadline for leaving the European Union. GBP/USD posted a large gain and is within 1% of a significant breakout. This leads AUDGBP towards sub-0.54 levels.

Major Risk Factor
Sixteen American states, led by California, filed a lawsuit to overturn President Donald Trump’s order declaring a national emergency. The declaration allows Mr Trump to divert money towards building a wall on the Mexican border. The states argue that it breaches the separation of powers and deprives them of federal funds earmarked for fighting drugs and other purposes.

Today’s Agenda
• Australian wage growth figures for the fourth quarter are released at 11:30am AEDT. The forecast is for +0.6%, a level that has not been exceeded since May 2014. But the RBA is looking for two consecutive quarters above 0.8% before rate hikes can occur. Based on the current economic outlook this is unlikely. Nonetheless, a reality check is required after the recent AUD rally.

• The minutes from the last FOMC Meeting are published late tonight. Markets will be looking for clarity from the Fed on the main factors they currently see as most influential over their monetary policy outlook. Like the RBA, the Fed is seen on hold until the fourth quarter but is less likely to cut rates than the RBA.

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