Good morning
Welcome back after what was a pretty decent weekend. We felt the warmth of the sun on Saturday, something of a rare treat at this time of year. Not quite as pleasant now, we have some pretty heavy rain, but as I’m tucked inside my office its less of a concern.
Over the weekend we had the German elections which saw Merz’s CDU win with 28.6% of the vote, short of the 30% he had hoped and in need of finding a partner for a coalition which should be formed by Easter. Outgoing Chancellor Scholz’s party, SDP, dropped to third place in the voting with just 16.4%. Ahead of them for AfD on around 21%, but Merz has already publicly said he will not work with them.
I do get the concern over parties like AfD but there is no doubting their growing popularity as western countries look at what they regard as unfairness and inequality over immigration. I do question the use of the ‘far-right’ label. What makes a party ‘far-right’? Sometimes it gets used for anything that isn’t left-leaning, but really it seems to go towards anything that has immigration high on their agenda. I’m not sure that is far right. I could be wrong of course.
Merz has already made waves, talking of the need for EU to distance itself from the US, saying Trump is largely indifferent to the fate of Europe and Merz’s goal is to strengthen Europe quickly. This is a pretty big change of tone in EU/US relations and comes amid some pretty shocking comments from Trump over Ukraine and Zelensky last week which, according to Trump, was Ukraine’s fault. Talk of further US/Russia discussions on Ukraine this week but notably Ukraine remain missing at the table.
Merz warns NATO is also at risk as a result of Trump’s recent comments. Europe is on Ukraine’s side and US seems to favour Russia more, although I think this is partly just Trump trying to get a quick end to the invasion to make himself look good, and also as we have seen, for him to access Ukraine’s mineral deposits in return for the billions of dollars of aid already provided by US to Ukraine. I don’t think peace, nor Ukraine’s minerals, will come as easily as Trump hopes, supporters of Trumps plan does see a deal that commits US to financing and security of Ukraine. Meanwhile European leaders along with Canada’s Trudeau are in Ukraine on a full show of support on the three year anniversary of the Russian invasion.
EUR opened higher after the German election result, EURUSD pushing up from 1.0460 to an overnight high around 1.0525, although has since slipped back to 1.0480. EUR also made small gains against GBP, with GBPEUR trading down from 1.2080 to 1.2050. The EUR support waned a little on comments from ECBs Villeroy who has said rates could be as low as 2% this summer althgouh ECBs Wunsch has warned against ECB making too many rate cuts without really thinking about it.
Elsewhere, USDJPY has held below 150.00 since Friday afternoon, now 149.30 as talk of further BoJ rate rises pushes Yen higher. GBPJPY 188.65 as I type.
In sport over the weekend, Spurs managed a third league win in a row for the first time since Dec 2023, a worrying statistic. Arsenal’s loss to West Hamm, and Liverpool’s win over Man City, has led many to say the title race is over and some bookies have even paid out bets on Liverpool’s title victory. England beat Scotland in the six nations, although it must be said that England had to rely on the Scottish kicker who missed three conversions, any one of which would have given Scotland the win.
England were not so lucky in the cricket, where Australia chased down England decent 351 with 2.5 overs to spare, despite being just 136-4 at one stage. It was the ninth highest run chase ever recorded. England will need to up their game in the remaining matches against South Africa and Afghanistan if they have any hope of reaching the semi-finals.
Plenty of BoE officials speaking today. GBP has been reasonably stable, GBPUSD did trade up to 1.2690 overnight but is back 1.2635, pretty much where it closed Friday. German IFO today is overshadowed by the German election news, and EU inflation numbers are likely to have little impact. Trumps’ speech this evening, following a meeting with Macron, could be the more important event on the calendar today.
- 09.00 German IFO
- 09.00 BoEs Lombardelli speaks
- 10.00 EU HICP
- 11.00 German Buba monthly report
- 11.15 BoEs Pill speaks
- 13.15 BoEs Ramsden speaks
- 18.00 BoEs Dhingra speaks
- 19.00 Trump speaks
- 07.00 German GDP
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