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Paying little attention

Is that it?

In a re-run of Monday's insouciance, investors spent yesterday demonstrating how little they care about the latest step-up in the Trump trade war. Once again the safe-haven Japanese yen was lumbered with the wooden spoon while the supposedly risky, commodity-oriented, Australian dollar took gold.

As he imposed tariffs on $200bn of Chinese imports on Monday the US president warned president Xi not to retaliate, or risk "great and fast economic retaliation" of his own. President Xi of course could not do otherwise, lest he lose face on both sides of the Pacific.  So yesterday he put tariffs on $60bn of US imports, some of which will be taxed at 10%, the remainder at 5%. Xi's measured response reinforced investors' belief that this latest round of tit-for-tat poses no increased economic danger.

So down went the safe-haven yen and franc, losing 0.3% and 0.2% respectively to sterling. Up went the "risky" Australian and Canadian dollars, adding 0.7% and 0.6%. And nowhere went the pound, the US dollar and the euro, which were just about unchanged against one another.  

The border line

Tuesday's ecostat agenda was one of unmitigated tedium. Even a 1.8% fall in New Zealand's GDT [milk] Price Index failed to electrify the market. There were signs of movement, however, in the Brexit negotiations with regard to the internal Irish border.

It was not immediately clear whether the progress was forwards or backwards.  The prime minister's position as she heads to the Salzburg summit is that "just as the UK has evolved its position, the EU will need to do the same". EU negotiator Michel Barnier said his team was looking again at the backstop plan and that "we are ready to improve this proposal".

It would be an exaggeration to say there are high hopes for Theresa May's meeting with European leaders this evening and tomorrow. Two and a quarter years on from the referendum there are no longer high hopes for anything. But the sense is of a softening of attitudes on both sides of the Channel, and that is positive for sterling. 

Inflation

Today's agenda has considerably more potential than Tuesday's. A raft of UK inflation data at half past nine will keep sterling on its toes and the figures for second quarter growth in New Zealand come out tonight.

Data last week showed average UK total remuneration rising by 2.9% a year. Today's consumer price index figures are forecast to put headline inflation at 2.4%, with house prices and factory gate prices going up at the same pace as wages. The bigger the difference between wages and consumer prices, the better it is for the economy even though investors might see a low inflation print as a reason to sell sterling, if only out of habit.

Tonight's gross domestic product numbers from New Zealand will be interesting. A couple of days ago prime minister Jacinda Ardern appeared to have foreknowledge that the figures will be good. Even though that turns out to be untrue, investors will probably have upped their expectations.

USD unaffected by China's retaliatory tariffs

USD unaffected by China's retaliatory tariffs

AUD the winner as investors chase yield

AUD the winner as investors chase yield

CAD not far behind, helped by higher oil prices

CAD not far behind, helped by higher oil prices

EUR unchanged against GBP and USD

EUR unchanged against GBP and USD

GBP faces inflation data test today

GBP faces inflation data test today

NZD optimistic about second quarter growth

NZD optimistic about second quarter growth

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