Trumping up the tension into G-20 - Westpac

Aside from US nonfarm payrolls this Friday, we also have the G20 summit in Hamburg, Germany to watch and if US president Trump’s tweets are any indication, North Korea and trade negotiations will feature, according to Martina Song, Research Analyst at Westpac.

Key Quotes

“Markets appeared to have got a bit too carried away with the positive central bank commentary last week in Sintra. The RBA’s decision and statement were in line with Westpac’s expectations yet AUD tumbled nearly a cent and Australia’s 3yr government bond yields fell as much as 9bps and 10yr yields 6bps. A less dovish Riksbank similarly disappointed. Markets though were little net changed after the FOMC minutes.”

“This week (as leader Kim Jong-un claims, a “gift” for the 4th of July US holiday), we saw N Korea successfully test an intercontinental ballistic missile, which appeared to be capable of hitting Alaska and possibly Hawaii. The US and South Korea conducted joint military exercises in response. KRW weakened and JPY strengthened, but it was muted and brief. Escalations could certainly trigger a larger risk-off move.”

“Trump started the week singling out steel and aluminium, then questioned the future of “the worst Trade Deals [sic] in world history”. While a tough trade stance may appeal to Trump’s voter base and fulfil campaign promises, actions such as imposing tariffs could face pushback domestically, such as from the automotive industry.”

“Then there’s the Trump-Putin meeting. Concerns around any deals made between the two could further expose factions within the Republican Party. There could also be renewed focus on ties between the Trump administration and Russia. These could further distract from the legislative agenda and weigh on the US dollar. The Fed’s minutes showed that while fiscal policy had previously been assessed as an upside risk, it is now a source of “both upside and downside risks to the economic outlook”.”