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US-China trade tensions continue to dominate markets with continual headlines of tariffs and retaliatory actions dictating sentiment, according to analysts at Westpac.

Key Quotes

“There is also rising concern centered on emerging markets, with several currencies (particularly Turkish Lira, Argentinian Peso) falling precipitously in August.”

“There is a seemingly inevitable ratcheting up of tensions between the US and China, however amid the uncertainty, the most recent PMI detail suggests China’s economy has sufficient strength to withstand this shock and while Asian currencies have been volatile, the underlying macroeconomic landscape is robust.”

“For now the real effect in advanced economies has been limited and US data continues to be strong – both hard and soft data supporting an upbeat outlook and assertive Fed.”

“This Fed outlook, as well as more hawkish pivots from BOE, BOC, and ECB announcing an end to their QE this year, has seen bond yields slowly rising.”

“USD has not yet been able to capitalise on this clear yield advantage as ECB sheds some caution, and US politics and mid-term elections come into focus.”

“UK and Europe also warrant attention, with Brexit deadline drawing nearer (see p.19) , yet the likelihood of smooth transition falling. The political machinations continue and while another election or second Brexit referendum is a possibility, Britain faces an uncomfortable six months and this uncertainty will clearly weigh on local businesses and consumers.”