Market Update – 10th December 2018 – Markets Sell Off As Yield Curve Inverts & Trade Tensions Rise

Financial markets continued their sour tone Friday evening and still roiling from the dramatic arrest of Huawei’s CFO we saw poor U.S jobs numbers that not only failed to meet expectations but also showed average earnings declined during November. In addition to that and perhaps more worrying to U.S financial markets was that U.S yield curves inverted for the first time in a decade, which means basically five year treasuries now have a lower yield than the two year treasury note. Throughout history when the yield curve inverts like this typically a recession is around the corner (occurs within the next couple of years) hence the substantial sell off Friday evening in U.S stocks, which lost between 2.24% and 3%, with the NASDAQ again the biggest drag.

The Aussie Dollar didn’t fare much better losing about half to 3/4 of a percent over the weekend with AUD/USD now well and truly back below 0.7200 vs. the Greenback and 0.6300 vs. the Euro. In addition to this it appears poor GDP numbers in the middle of last week suggest the next move by the RBA may no longer be a rate hike but rather a rate cut given the sharp decline in quarterly GDP to an annualised figure of just 1.2%. Of course in Australia we don’t annualize the figure like in the U.S but 0.3% GDP growth in the latest quarter vs. the anticipated 0.6% growth certainly has taken the wind out of the AUD’s sails, for the time being.

Ahead today is home loans numbers followed by UK manufacturing and GDP figures.

AUD EXCHANGE RATES:

AUD/USD – 0.7150

AUD/GBP – 0.5614

AUD/EUR – 0.6271

AUD/NZD – 1.0425

AUD/JPY – 80.541

USD/BTC – $3,545

OTHER MARKETS:

All Ords (XAO) – 5,757

Gold – A$1,735/oz

Silver –  A$20.36/oz

WTI – US$52.26/barrel

DATA RELEASES TODAY:

AUD – Home Loans at 11.30am

GBP – Manufacturing and GDP at 8.30pm

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Patrick Downes

Senior Corporate FX Dealer

Phone Patrick – 0431 278 632 

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