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Trade tensions take back seat to inflation

Published July 13, 2018

The New Zealand Dollar recovered some if its losses overnight with China resisting immediate retaliation to new tariffs proposed by the US. This allowed markets to relax a little and focus on US Inflation numbers.

US Inflation – Biggest Gain in 6 Years

US inflation numbers only rose to 0.1% (month on month) in June, missing forecasts of 0.2%. However, annual inflation was at 2.9% – the biggest gain since February 2012. Rising US consumer prices and a strong labour market have prompted the Federal Reserve to continue its path to higher interest rates with markets pricing in a fourth 2018 rate hike at a 50% chance.

Fed Chairman Jerome Powell commented in a radio interview this morning that he believes the U.S economy remains in a “good place” with tax cuts and spending programs likely to boost growth over the next 3 years. However, Powell also mentioned that trade disputes remain a concern.

UK Brexit White Paper

PM Theresa May published her long-awaited white paper for Britain’s future relations with the European Union which outlined plans to keep close trade ties for goods but abandons plan for close financial ties, making it harder for banks to access the European single market. Brexit supporters were angered by the push for close ties, with Tory Brexiteer Jacob Rees-Mogg stating it was a “bad deal for Britain”.
May has said the proposal was “delivering on the vote of the British people to take back control of our money, our laws and our borders” and is now hoping the EU will back the proposals in the white paper so an exit deal can be struck ahead of the UK’s official departure from the EU in March.

Data Outlook
Chinese Trade Balance is out later today, along with the University of Michigan’s Consumer Sentiment survey overnight. Local markets are focusing on next Tuesday’s New Zealand CPI data.