Financial markets are gyrating on speculation as to what Donald Trump as US President means for growth and employment. Perhaps more importantly for markets are the implications for inflation and global trade. While it is still too early to draw any definitive conclusions as we lack specific detail on a lot of Trump’s policies, it’s fair to say that Trump is a catalyst for change.
Financial markets have now moved to price in a slight rate increase for the first time since late 2014, with cash rate futures currently pricing in 3 basis points of hikes in the next 12 months (refer chart below). This contrasts sharply to the average of around 30 basis points of rate cuts (i.e. more than one further RBA rate cut) priced in over the last year, and the 10 basis points priced in as recently as last month.
Cash rate pricing from interbank bill futures
