Market Update
The Australian Bond Exchange correctly forecast that the RBA would keep interest rates unchanged at the May Board meeting. While the market was uncertain of the outcome, with over 50% of market participants predicting a cut in rate, the analyst here did not believe the RBA had enough information to justify an interest rate decrease. While obviously, the recent inflation report was a concern the RBA’s response was not as negative as expected. But our basis for a holding call was due to the continued strength in employment figures. We continue to believe interest should remain on hold until the currency moves in line for a change.
With the major banks releasing their half-yearly results we are seeing a new challenging era for them as lending growth slows and margins compress. This will tighten any money lending and subdue market growth.
Over the weekend President Donald Trump put trade talks between the U.S. and China at risk by sending out two tweets that threatened to increase tariffs on $200 billions of Chinese imports to 25%. Foreign Ministry officials in Beijing said a delegation still planned on travelling to Washington for talks, but it is unclear whether Vice Premier Liu would attend, or even whether China would be willing to negotiate with a gun to their heads. The stock market reaction was dire, falling dramatic as they desire a deal to be in place for smoother market trading.