Daily Commentary BY THE CURVE TEAM –

Trade Tussle Intensifies

18th of June, 2018

The Trump Administrations pursuit of a better trade balance kicked up a gear Friday night as we finally saw an announcement of tariffs on a number of Chinese Imports. The retaliation from the Chinese was quick but the contained situation could easily erupt into something much bigger.

The prospects of a full blown trade war kicked up a gear Friday night with first the US, then China announcing tariffs to the tune of $50bln on each other. The moves so far are largely both symbolic and strategic as they each look for leverage. Both side would prefer a deal but the risk of escalation is growing.

Markets still seem to be taking the trade spat’s lead by the US in their stride. There could be a tipping point where they sit up and take notice but for now they are content to wait and watch as the skirmish continues.

One market though that continues to be acutely reactive to another skirmish is oil. The OPEC meeting scheduled for later this week could be a very interesting one. The Saudi’s and Russian’s are keen to lift production cuts and increase pumping more oil. Meanwhile Iran, Iraq, and Venezuela currently oppose any change to the current production agreement.

Despite the desires of both the Saudi’s and Russian’s, Iran’s OPEC representative said that:

“If the Kingdom of Saudi Arabia and Russia want to increase production, this requires unanimity. If the two want to act alone, that’s a breach of the cooperation agreement.”

How this unfolds and the impact on the outlook for the price of oil is important for monetary policy. The directional movements in the price of oil have a large impact on headline inflation globally so many will be watching OPEC and how the outcome of the meeting will impact the outlook.

It is the quiet week of the month for local data with no major releases scheduled. The RBA’s minutes to the June meeting will be released tomorrow while Governor Lowe will appear on a panel at a forum hosted by the ECB in Portugal Wednesday night.

There will be plenty of monthly activity indicators out globally before the focus shifts to the OPEC meeting later in the week.

David Flanagan

Director - Interest Rate Markets