Markets enjoy another day of improved risk sentiment, hoping for more of the same today

Good morning

Half way through April already and the markets continue to trade with a degree of optimism that I find mildly odd given the potential for upheaval in global trade, with or without large tariffs.  I can’t see us going back to how things were a few months ago, that’s for sure.  Quite how this all pans out remains to be seen, will Trump take a slightly kinder view on his ‘allies’ or will he continue to alienate them and perhaps even push them into relationships with some who would not normally be seen as allies?  Plenty of talk of exemptions and exceptions to tariff rules but there is too much uncertainty to know what will actually come into place. 

Together with higher stock prices in both EU and US, the US dollar saw more general weakness although that US 10 year yield remains stubbornly high around the 4.5% area.  GBP has performed well, perhaps helped by US TrsSec Bessent who seemed to single out UK, Australia and South Korea as top targets for trade deals.  I can’t help thinking Trump is trying to drive a wedge between UK and EU.  GBPUSD traded up to 1.3220 this morning, UK employment numbers didn’t really provide any major market impact, if anything they were slightly better than had been expected, as were the BRC sales numbers overnight.  GBP has held up well against EUR, GBPEUR climbing to 1.1640, some 120 points up from yesterday morning lows.  No surprise that AUD is also up.

EURUSD is 1.1345, not collapsing but unable to move higher despite USD weakness, most likely down to Trump’s continued reference to EU as a trading bloc set up to attack US.  I think he must mean ‘compete with’ rather than ‘attack’.  EU’s trade guru Sefcovic is in Washington to discuss trade in the 90-day window.  The problem is, and I say this as absolutely nothing of a trade expert, the US will want EU to take their cars and their chickens, both of which are generally below the standards expected from the EU. 

Mind you, I’ve not been to Europe for a few months but if London is anything to go by, the UK and perhaps EU have not been slow in buying Teslas.  The roads are full of them, far more so than any other electric vehicle.  I know there is increasing competition from China but in my mind Tesla still rules the roost.  So Trump can hardly say we’ve not been buying US cars.  We just don’t want the massive pick-up trucks that are far more suited to their roads.

Elsewhere, RBA minutes show a degree of caution on rate cuts.  That meeting came just before Trump’s ‘Liberation Day’ tariff announcements so RBA officials were rightly reluctant to look too far into the crystal ball. RBA will be patient.  BoJ could be patient as well, there had been talk of rate rises in their may meeting but there seems to be suggestions that they’d rather stay in wait and see mode, particularly with Yen well off its recent lows. 

In other news, I read somewhere that Hamas are talking of handing over a large number, if not all hostages on condition that Israel withdraw from Gaza.  Whether that is enough for Israel to end their Gaza attacks remains to be seen, but I doubt Israel will agree to anything that prevents them from attacking Hamas infrastructure.

The UK steel plant in Scunthorpe continues to remain under threat as the race to get materials to keep the furnaces firing at high enough temperatures goes on.  If the furnaces are not kept going, the melted iron ore at the bottom of the furnace solidifies into an immovable lump, blocking the furnace and making it pretty much irreparable. 

In Ukraine, Zelensky pleaded with Trump to come to visit Ukraine to see for himself the destruction caused by the Russian invasion.  Trump responded by seeming to blame Ukraine for the invasion, or at least holding the jointly responsible.  Slightly odd given they were invaded but we have come to expect that from Trump.  Meanwhile the US/Ukraine mineral deal is still being negotiated.  Talk is that large Russian forces are building, lining up another potential large-scale invasion.

That’s about all for the time being, I’m out and about for much of the day so need to get going. 

Not the fullest economic calendar today, nothing that will really overshadow the ongoing trade battles/wars/talks.  UK inflation out early tomorrow morning, market looking for something around similar levels to last month, if anything erring on the lower side.  However it would need to did come in significantly lower I’m not sure it will be enough to turn this current strong GBP trend.

Have a great day…

-  10.00 German ZEW

-  13.30 US NY empire state manufacturing index

-  13.30 CAD CPI

-  17.00 ECBs’ Lagarde speaks

-  00.10 Feds Cook speaks

-  03.00 China GDP, industrial production, retail sales

-  07.00 UK CPI, PPI, RPI