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Inflated prices, inflated deficits, inflated tensions

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US consumer price inflation is due. Markets focus on this price measure. It matters to inflation-linked US government bonds. The Federal Reserve does not focus on this price measure. A relatively large part of US consumer price inflation is prices people do not pay in the real world. These prices may start adding to inflation this year.
  • Reduced tax revenues pushed the February US government budget deficit to a six-year high. As well as tax cuts, the tightening of tax loopholes may have been less effective. Part of this fiscal stimulus is likely to leak into imports, widening the US current account deficit.
  • UK PM May accused Russia of being responsible for a chemical weapons attack in the UK. Russian President Putin has until midnight to respond, or face reprisals. Russian capital flows into the UK and the possibility of further economic sanctions make this market relevant.
  • The US has a special election for a Pennsylvanian seat in the House of Representatives. Opinion polls (those ever reliable measures) are suggesting the Democrats could win the previously secure Republican seat. This does not matter to the control of the current Congress, but investors are looking ahead to the November mid-term elections.