20 May 2019
Bassanese Bites: ScoMo Surprise – Week beginning: 20 May 2019
The escalation in US-China trade tensions continued to dominate global market sentiment last week, with bond yields dropping lower and equities prices generally pulling back. That said, the fallout from the escalation in trade measures has been contained by continual US assurances that talks are ongoing and a deal might yet be done. Trump’s decision to at least delay planned tariff increases on cars (which would particularly hurt Europe and Japan) and resolve lingering trade disputes with Mexico and Canada also provided some market support. In what appears somewhat of a flight to safety, the $US continued to firm.
Fundamental news was mixed, with US retail sales and industrial production a bit softer than expected last week, though what remains of the Q1 US earnings reporting season continued to pleasantly surprise. Chinese data covering industrial activity and retail sales were also somewhat softer than expected, highlighting the risk China faces if the trade war escalates.
In Australia, housing finance and the NAB business survey both pointed to a weakening economic outlook, with the highlight being a lift in the unemployment rate to 5.2% despite continued solid employment growth. That higher unemployment rate might be enough to all but cement an RBA rate cut in June. If it’s coming, I’d expect RBA Governor Phil Lowe to give a strong signal to this effect in an important speech on Tuesday.
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