July was another strong month for markets, with gains in all major indices driven by the building wave of accommodative monetary policy globally.  The ASX200 soared to an all-time high during intraday trading late in the month, posting a gain of 2.47% for the period, as lower interest rate expectations and record-low yields supported growth.  The positivity will be tested in the coming weeks following President Trump’s decision to impose additional tariffs on US$300 billion of Chinese imports, and a reporting season expected to mildly disappoint.  Meanwhile, the trade concerns, slowing economic growth and the global easing cycle combined to force Australian yields even lower.  The 10yr reached 1.085% following Trump’s announcement – a 122% decline since the beginning of the year.  With conditions expected to continue in the short- to medium-term and the market confident of further RBA rate reductions, it is possible yields have not finished their falls.

Figure 1. Term Deposit Spread Over Relevant BBSW: June 2019 v May 2019

Source: RBA, BondAdviser

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