It has been another bad week for global equity markets, with a massive sell-off till Thursday and a partial reversal last Friday as bargain hunters emerged and stopped the fall. Nonetheless, equity markets have now wiped out the gains made over the last 12 months.
Concerns over global growth outlook, the Italian budget, an impasse on Brexit talks as well as international tensions with Saudi Arabia over the killing of a journalist and attempted bomb attacks targeting former US President Obama, Hillary Clinton, CNN and other Democrats have dented risk appetite. One small positive though, interest rates are lower.
There has been some paring back of US rate hikes built into the yield curve over the past couple of weeks, but only slightly. On top of a 25 basis point US rate hike fully factored in for December this year, about 50 basis points of rate hikes are priced into the US market yield curve by the end of next year, down from almost 60 basis points as of two weeks ago. This is in contrast to the Australian cash rate which is not expected to move until 2020.
Market expectation for rate hikes by the US Federal Reserve in 2019