US PPI data confirmed the CPI inflation data, coming in hotter than expected, justifying the Fed’s reluctance to cut rates further. The rebound in inflation and the escalating international trade war, was brushed off by equity markets. US equities followed rallies in both Europe and Asia. European markets were boosted by the progress on a peaceful resolution of the Ukraine/Russian war. Trump has named a negotiating team, and negotiations are in the process of beginning. UK GDP was expected to contract in Q4, but surprisingly expanded by the narrowest of margins, 0.1%. This avoids the technical recession, but only due to mass immigration, as per capita GDP contracted. The US Dollar continued to decline, with the EUR breaking back above 1.0400, while the GBP surged to 1.2530.
The softer reserve allowed the commodity currencies recovery to continue, with the AUD heading back to 0.6300, while the NZD holds around 0.5650. The Australian and New Zealand economies do not have as much to fear on the reciprocal tariff front, as they are relatively tariff-free, compared to many Countries in Europe and Asian. The Australian equity markets traded at record highs, despite the RBA holding interest rates at elevated levels for an extended period.
