Daily Commentary BY THE CURVE TEAM –

More Trade Talk & Aussie Trade Balance Consolidates

6th of April, 2018

The ongoing to and fro in the US-China trade negotiations continue to create a whipsaw effect in markets, this time it was a shift towards the upside. This continues to hog the spotlight while we also had key domestic data released yesterday and some Fed talk giving a bit more clarity as to where rates might go.

Stocks pushed higher, the 10yr US Treasury is back up near 2.84% and the USD is back on the bid as negotiations and reports on the trade discussions between China and the US continue to develop. Overnight we heard from US Presidential Economics Advisor Larry Kudlow, who sought to calm investors saying the hype surrounding the trade war is an overreaction.

Back home and the trade balance looks to be continuing to consolidate after the trade data reflected another strong surplus in February. A large uplift in rural good exports, which offset the decline in non-monetary gold, saw the trade balance exceed expectations and record a surplus of $825m.

After offering a negative contribution to Q4 GDP, this release is more positive and looks to be supportive in alleviating the likely slowing consumption growth. Something that will help support the RBA’s cautiously optimistic view on the economy.

Quickly back to the US, rhetoric coming out of the Fed indicates a hawkish view on the path for inflation and consequently rates. Atlanta Fed President and voting member, Raphael Bostic was out overnight indicating that the Fed is in a position to allow the economy to run a little hot before choking it off. He noted,

“I am actually very comfortable going above the 2 percent by some amount — 2.2, 2.3 — I don’t think that is a crisis of overheating. I think it is also important that we take a stance so that everyone understands that the 2 percent level is an average, not a ceiling.”

With the Fed noting that inflation is expected to return to the 2% target in the medium term on the back of a buoyant economic recovery, this proves to be an interesting notion.

This ties in nicely with the key release of US Non-Farm Payrolls where the data around wages will be particularly important.

Oliver Parsons

Client Relationship Manager