Daily Commentary BY THE CURVE TEAM –

Trump, G20 and Key Domestic Data

23rd of July, 2018

Uncertainty over the global outlook continue to grow. Trump shows no signs of backing down on the trade war as the G20 warns that trade is one of a number of downside risks that have increased recently. Locally this week domestic data will again be the key ahead of the RBA’s August meeting.

President Trump’s controversial full interview with CNBC was released on Friday night. It revealed more insights on Trump’s resolve to purse his agenda which could eventually see tariffs on all $5oobln odd of Chinese imports into the US if needed.

The Chinese don’t seem too worried though. Following the interview China indicated that the US can do whatever it wants to do, and that they are prepared for countermeasures. Comments from both sides suggest that the war on trade isn’t going anywhere and is likely to intensify unless one side folds.

The communique following the meeting of the G20 finance ministers over the weekend highlighted trade amongst a growing number of risks facing the global economy as present. The communique specifically said:

“These include rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality and structurally weak growth, particularly in some advanced economies.”

As these global issues continue to simmer away, we will get a key data update locally this week that will be important ahead of the August RBA meeting and subsequent Quarterly Statement on Monetary Policy.

Consumer price data for the second quarter will be due out on Wednesday and will be a crucial input into the RBA’s outlook and updated forecasts that we will receive on the 10th of August.

The market is currently expecting the headline inflation rate to increase by 0.5%, which would see the annual rate remain at the bottom end of the RBA’s 2-3% target band. The more important core read is expected to rise by the same amount which would see the annual core rate fall back below the target band.

The market has consistently over estimated the CPI outcomes over the past two years so the final result will be of key interest.

David Flanagan

Director - Interest Rate Markets