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  • In a relatively quiet week for economic releases Donald Trump returned to twitter with gusto. As is typical, the tweets were a stream of consciousness. From a macro perspective he complained about EURUSD, the Russian gas pipeline to Europe, the Federal Reserve and the USDCNY. There was subtle recognition that his Chinese tariffs plan is not fulfilling his goals partially because the CNY was depreciating against the USD. The Institute of International Finance estimates that the move of the CNY from 6.4 to 6.9 per dollar has offset the impact of the first two rounds of US tariffs. Trump continues to live in the era of the Gold Standard where fixed exchange rates assist the efficacy of tariffs.
  • The Chinese government authorized local governments to increase the volume of infrastructure spending. An infrastructure spending plan is acutely required for the US however, a Democratic controlled House of Congress is unlikely to favor such a plan prior to the presidential election.
  • Geo-political risks are always a part of our assessment of the macro economic environment. Most notable present geo-political risks, are the ongoing discussions between the EU and Italian government over the proposed populist budget “giveaways”. In addition, tensions between the US and Iran have escalated as two more oil tankers were attacked in the Strait of Hormuz. Both issues contain plenty of “noise” but neither at this stage represents a catalyst for a change in our economic outlook.
  • US inflation (see chart) slightly disappointed expectations but market comment was surprising in that it created a general view that the Fed would be required to cut short term rates this week. We expect the Fed to hold off on any cut because they can make a more informed decision post the G20 meeting (end of July) and the release of another set of employment data (early July).