Markets were dominated last week by the response to the prospect of a tit-for-tat escalation of the US-China trade dispute. The effect on confidence has been most obvious in foreign exchange markets with a sharp fall in the Australian dollar which is trading below 74 cents at a 12-month low. This risk aversion is expected to continue this week as will end of financial year book-squaring in all financial markets.
So expect some increased volatility this week as traders influence daily moves. We have already seen short term BBSW rates push higher than the levels recorded back in mid-April to be now trading at a two-year high. Let’s hope we get some relief after 30 June!
The ANZ published an interesting article last week with their views on house prices. The key point being that the weakness in the housing market has persisted for longer than expected and ANZ now anticipate peak-to-trough price declines of 10% in Sydney and Melbourne. There is also the prospect of a further tightening in home lending standards as a possible outcome from the Royal Commission that will slow the housing market.
The outcome being that analysts believe the RBA will be reluctant to raise interest rates when house prices are falling and as such, have started to argue that there may be a delay in any potential RBA rate hike. Futures markets are gradually moving the first rate hike out, from May 2019 now to August 2019.