Markets remain volatile as they navigate their way through a slowing global growth backdrop peppered with risks, including trade tensions, potential US government shutdowns and Brexit shenanigans. On the latter, I think it’s time to plan your next overseas holiday, to Britain. With Brexit negotiations going poorly, the British pound was the worst performing currency last week, falling to an 18-month low.
With Theresa May remains the UK Prime Minister after surviving the no-confidence vote last week there is still a large risk that the Brexit agreement will fail to win parliamentary support (in January). This could see Theresa May step aside then or even before and the British pound weaken once again.
With all the data and offshore events over the last few weeks, recent speeches by RBA officials have hinted that there was room for a rate cut. This has seen the financial markets price in a very slight probability of a rate cut. Yes, housing data is soft and house prices are falling (a concern for the RBA) but they are coming off elevated levels. In my humble opinion, an RBA rate cut is highly unlikely and I still believe the next move in rates is still up, although recent events may delay this move well into 2020.
This will be the last commentary for 2018. The Rural Bank Treasury Team wishes you compliments of the Season and look forward to being back with the next edition of the Weekly Economic Commentary in early January 2019.