Market sentiment remains at the mercy of political rhetoric and in particular comments by Donald Trump. Equity markets have whip-sawed last week on Trump’s comments via twitter (of course) and Chinese President Xi’s supporting comments that improved the prospects for resolutions in trade tensions. Sentiment fluctuated not only as the US/China trade negotiations progressed but also on news Trump is considering re-joining the TPP (unlikely given withdrawing from TPP was his first action as president, fulfilling a key campaign pledge). Thus further bouts of volatility and headline risk seem assured.
A risk-off tone emerged as Trump commented about missile strikes in Syria only to be reversed after the US President “clarified” earlier remarks tweeting that he never said when an attack on Syria would take place. Then, late on Friday night, there was a “surgical strike” limited to alleged chemical weapons facilities in Syria with a tweet “mission accomplished” soon thereafter raising concerns over possible retaliation. Geopolitical risk may be elevated in the short term.
Asked following a speech last week “what keeps him awake at night?” the RBA Governor Philip Lowe responded that he “sleeps relatively well” but his three main concerns were fragilities in China’s financial system, the possibility of a trade war, and the high level of household debt, particularly as it affects the economy’s response to an external shock. The RBA Board next meets on the 1st May and is almost certain to leave rates unchanged.