Summary:

• Reserve Bank of Australia leaves rates unchanged as broadly expected, a set of domestic data disappoints
• US President announces exemptions from steel and aluminium tariffs for Canada and Mexico depend on a NAFTA final agreement
• US stocks gained over 1% as traders decided to ignore trade war fears on Monday

In line with expectations the Reserve Bank of Australia chose to leave all interest rates untouched sending pretty the same remarks with regard to the economy as well as the currency. Consequently, the Australian dollar did not respond too much, however, the data concerning retail sales for January and the calculation of net exports input to GDP growth disappointed to some extent. Before we more those readings let us come forth with takeaways coming from the RBA’s meeting:

• wage growth and thereby inflation likely to remain low for some time
• sluggish CPI growth reflects low wage growth and strong retail competition
• the economy is anticipated to grow faster in 2018 than in the prior year
• household consumption remain a source of uncertainty
• the appreciating exchange rate could slow economic activity and price trends
• exports are forecast to contribute in GDP growth after a weak end of the past year

The communique did not deviate from the latest one, hence traders stayed cautious putting emphasis on the domestic data just a day before the key GDP print for the fourth quarter. Let’s begin with net exports which subtracted as much as 0.5% from the Q4 release, albeit the consensus had pointed to a 0.6% decrease. Either way, it was the largest subtraction since 2012, and along with subpar inventories data we knew yesterday it does not bode well ahead of tomorrow’s gross domestic product reading.

Australian retail sales remained subdued in January illustrating not a good start to the new quarter in terms of household outlays. Source: Macrobond, XTB Research

Furthermore, retail sales for January came in at 0.1% mom missing forecasts indicating a 0.4% mom increase. Taking into account the RBA’s remark on quite a weak position of household consumption today’s release deserves particular attention. As the chart above depicts the underlying trend of retail sales stays remarkably subdued which seems to coincide with dormant wage growth as well as relevant households’ indebtedness.

The AUDUSD struggles in the vicinity of 0.7755 and after an array of the bleak data one may assume that a more notable rebound is unlikely. Nevertheless, if USD bulls concede then a technical rise toward 0.7975 cannot be ruled out. Source: xStation5

Steel and aluminium tariffs are the hottest topic for this week irrespective of central bank meetings along with a monthly US employment report. As per the latest tweet of President Trump exemptions from planned tariffs for Canada and Mexico could be deployed only if the fair agreement (for the US economy of course) is signed.

Tariffs seem to have become a bargaining chip for Trump’s administration in NAFTA talks. Source: Twitter

It looks like steel and aluminium tariffs have become a bargaining chip for Trump’s administration in order to obtain a beneficial NAFTA agreement. It is very interesting how the thread will unfold as it could impact financial markets, global trade and finally the global economy as well. On top of that, it’s worth noting that Donald Trump is expected to meet with executives from companies which use either steel or aluminium in the production process to discuss the tariffs proposals, this is the news coming from Bloomberg. Do notice that while tariffs are expected to benefit US-based steel and aluminium producers (probably just in the short-term) it could have adverse reverberations across the US economy as both metals are used in production of many goods.

The SP500 (US500 on xStation5) drew an encouraging candlestick on Monday which seems to bode well for bulls going forward. Source: xStation5

Finally, let’s summarize the US session on Wall Street as all major indices managed to gain over 1%. The SP500 added 1.1%, the NASDAQ (US100) grew 1% while the Dow Jones (US30) advanced almost 1.4%. There was no a particular reason for better performance beyond an explanation that investors chose to play down tariffs-related risks which does not sound convincingly.