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Yield Curves, Tariffs and Unemployment

Published August 15, 2019

By George Hopkinson

The AUD opens lower this morning as equity markets and commodity currencies (CAD, AUD, and NZD) are unable to shrug off global ‘risk-off’ sentiment. The ‘safe-haven’ currencies were the benefactors of the sell-off (CHF, JPY, and USD).

Yesterday’s market rally from the White House’s tactical turnaround on Chinese tariffs has not lasted long with disappointing data contributing to worries about the global economy despite trade negotiations still being well and truly on the table. Chinese officials are sticking to their plans to visit Washington in September for face-to-face meetings.

Chinese retail sales and industrial production were both well below market expectations and reinforced concerns about the Chinese and global economies.  German GDP has fallen 0.1% in Q2 with fresh calls for German fiscal stimulus to support the economy.  The ongoing protests in Hong Kong and the risk of Chinese military intervention is also contributing to the nervous feeling across markets.

The gap between US 2-year and 10-year yields dropped below zero after an onslaught of soft economic data globally. 30-year yields fell to a record low.

In Brexit news; former chancellor Philip Hammond has accused Prime Minister Boris Johnson of trying to diminish any opportunity of a new Brexit deal by making demands the EU could never accept. In a Times article recently published, the former chancellor stated that a no-deal Brexit would be “a betrayal” of the 2016 referendum result.

Today’s local focus will be this afternoon’s Australian employment data, with markets expecting an unemployment rate of 5.2%.