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Markets stabilize overnight whilst all eyes on Hong Kong

Published August 16, 2019

By Nicholas Cork

US yields continued to slide across the board from the 2-year to 30-year yield despite strong US retail sales data, with the market expecting the Fed to cut rates again in September aiding the move. Widespread talk of the yield curve inversion indicating a recession is being slightly offset by the strength of recent US data and hopes of some resolution in the trade dispute, however the euro fell to a two week low after ECB Governing Council member Olli Rehn reportedly said significant easing is needed in September, saying that ‘the ECB should come up with an “impactful and significant” stimulus package at its next meeting.

Trump weighed in on the HK situation saying “I am concerned. I wouldn’t want to see a violent crackdown,” and he would like to see China humanely solve the ‘problem’ whilst China’s People’s Armed Police — the armed forces’ unit dedicated to crushing internal unrest — were seen practicing drills on Thursday in the Shenzhen Bay sports centre just across the border. Trump also said he has a call scheduled with XI ‘soon’, which all in all has helped to calm the markets a touch after China called looming U.S. tariffs a violation of recent accords, vowing retaliation. The other geopolitical risk between India and Pakistan appears to be on a knife-edge however is currently being overshadowed by the events in HK.

Locally the AUD find some support around 0.6750 yesterday after a stronger than expected employment report with 41,000 new jobs being created in July, helping push the AUD up towards 0.6800 before drifting back to 0.6770 to start today’s session. AUD crosses have all outperformed overnight and open a touch higher today than yesterday.