In recent weeks, several significant developments have emerged in the global economic landscape, highlighting the dynamics of international trade agreements and economic indicators. India, Japan, and Switzerland are still not quite there on trade enforcement issues. At the same time, the European Union appears to be losing ground in comparable negotiations. The United States has made a successful deal with the United Kingdom. Retaliatory measures aside, it’s a positive thing to see the Administration moving to de-escalate trade tensions with China by lowering tariffs. As these exciting developments continue to unfold, all eyes are now on budget negotiations in the U.S. This change follows Moody’s recent downgrade of the country’s credit rating.
This week’s economic indicators are focused on just as much, if not more. First, March CPI will be released in early April and that showed a low year-on-year CPI rate of 2.6%. Economists are expecting an uptick to show in that indicator. Core CPI should rise too, from 3.4% to 3.6%. Apart from these, the market awaits some key reports that are likely to set the tone for the market. That would encompass CPI data out of the United Kingdom and perhaps most importantly the Philly Fed Index, a key U.S. business survey.
Trade Agreements: Progress and Setbacks
First, we are hearing recently that India, Japan and more recently Thailand and Switzerland are getting close an agreement on trades. Having such an agreement in place could go a long way towards laying the groundwork for trade relations between these three countries, with closer economic cooperation to follow. The European Union is still very far away from agreeing on a similar deal. The EU’s trouble in completing new trade deals could hurt its influence around the world and economic relations with other major economies.
Luckily, on the other side of the Atlantic, the United States has made quick and significant headway in its own trade negotiations. A recent agreement with the United Kingdom is a historic first step, but it will really put bilateral trade ties to the test. This initiative is sure to awaken mutually beneficial opportunities for both economies, including greater investment and trade flows.
In a gesture to help lower trade tensions, the United States has further rolled back its tariffs on goods from China. Currently, US tariffs on China are at a high of 30%, though this is set to fall back to 0% through August. This month’s reduction is a positive development and one that augurs well for stabilizing relations between the two countries. It might create opportunities for more ambitious negotiations in the future.
Economic Indicators: Inflation and Consumer Sentiment
With inflation, interest rates and a multitude of other economic indicators dominating the news cycle, analysts are focusing closely on the next Consumer Price Index (CPI) report. Falling gasoline prices have led some economists to forecast that the headline CPI will register a dip—as much as 2.3%—from March’s low of 2.6% year-on-year. This increasing inflation may force a hand on monetary policy decisions in the future.
Core CPI is forecast to accelerate from 3.4% to 3.6%. The core CPI omits food and energy prices, which are too volatile, the argument goes. Yet this approach provides a more accurate glimpse of the underlying inflation trends. These inflationary pressures will undoubtedly fuel more debates among elected officials about whether to raise interest rates or use other economic stimulus measures.
April’s economic readings didn’t just tell us about inflation. Specifically, they announced that the 50-point score that divides economic expansion from contraction was 50.8. That’s a sign that the economy is on a path of modest growth. Economists should be attentive to changes in consumer sentiment with recent trade news.
Focus on Global Markets: Australia and the UK
Turning to Australia, another rate decision is attracting a lot of interest from economists and investors. The Reserve Bank of Australia faces challenges as it navigates economic recovery amid changing global conditions. Market participants are looking forward to seeing how policymakers address ongoing inflationary pressures. They are interested to see if the Fed will raise interest rates to counteract.
Across the pond in the UK, inflation data is similarly ground zero for market movers. British regulators are due to re-set energy prices in April and October, a change that would have a dramatic impact on headline inflation statistics. An increase in energy prices would further worsen an inflationary double-whammy, increasing the political pressure in the UK political economy and drawing sharper analysis attention.
Additionally, a key business survey in the United States aims to gauge corporate sentiment following the turbulence caused by recent trade wars. Businesses of all sizes are taking stock and reevaluating based on tumultuous and dynamic international trade conditions. We hope that this comprehensive national survey will provide important early indicators of the overall state of creative economy health.