Good morning
Global equities had a better day yesterday but the US dollar continues to slide lower, EURUSD is now 1.0800 having seen a high so far of 1.0820, we’ve failed a couple of times around that area which comes just ahead of a fairly big technical level for me, 1.0835, which comes from a series of lows since late Nov 2022. GBPUSD has seen a high so far of 1.2920, while GBPEUR is a touch lower again around the 1.1935 area. USDJPY has traded to a low of 148.05
The relative EUR strength has been put down to comments from Germany’s Merz who said Germany will do whatever it takes to defend itself, looks to increase defence spending and look for a EUR500bn infrastructure fund, as he seeks to ease fiscal restraints. German 10 year bond yields rose significantly, indeed some are pointing out it is the largest rally since 1990. I can only take their word for that as I’m not inclined to trawl back through years of data, but what I do see is last Friday yields were down around the 2.37% and have since hit a high of 2.93%. UK yields climbed as well, 10 year were around 4.45% on Friday and have seen a high of nearly 4.8% so far this morning, a decent rise but still well below the German bonds.
Goldmans Sachs have said that they see faster German growth on this potential fiscal push, while the UK is in for a long and challenging year of low growth according to the British Chamber of Commerce, who have downgraded UK’s 2025 economic growth forecast to 0.9% from 1.3%, also seeing higher inflation and unemployment. BoEs Bailey has expressed concern about the substantial risks arising from US trade tariffs.
While we know there are other factors at play, Trump has been one of the leading cause of volatility in the markets recently and there are no signs of this abating for the time being. Tariff talk has the potential to drive inflation higher and you will recall yesterday I mentioned the threat of stagflation, where we see lower growth and higher inflation, a pretty horrendous coupling. I have even seen the term ‘recession’ used in a couple of morning reports, the first mention of the dreaded word for a long time. Yesterday’s US ADP employment numbers were much weaker than expected, although in contrast the ISM PMi was a little better. Still, with attention on the US jobs numbers, todays Challenger and initial jobless claims data will be very closely watched, ahead of tomorrows nonfarm payrolls.
There is so much going on at the moment it is difficult to know which way to turn. I saw comments from China’s Xi who said China is ready for a tough time, his words ‘If the US want war, be it a trade war, tariff war or any other type of war, we’re ready to fight till the end’. Strong words, very strong in fact, coming as China also announce a boost in military spending. US/China relations don’t seem to be great. Nor do US/EU relations. US have said they will no longer share intelligence with Ukraine and have stopped Ukrainian use of US missiles in an effort to force Zelensky to negotiate over the mineral reserves. I still wonder what the US would do if Zelensky said he’d have to give up and allow Russia to take Ukraine, including those reserves Trump has his eye on.
Trump has now turned his attention to Hamas, he has given them an ultimatum to release the remaining hostages held in Gaza. He has made similar comments, but they were before he was President. Quite what will happen if Hamas do not do as they are told remains to be seen. The main issue is that the days of the world doing whatever the US demands are well and truly over. There was a time when a threat from the US was enough to bring other countries into line, but just take a look at the BRICS+ nations who will certainly not bow down to US demands, and as we know the likes of Hamas or other such organisations may be attacked, even dismantled, but they always come back in another form.
Talk of recessions and lower global demand continues to push oil prices down, WTI saw a low near $65 yesterday, Brent traded to low $68’s which was, I believe, the lowest since Nov 2021. Both are off those lows now, around $1-2 higher.
So, a lot of waffling this morning, indicative of the number of major issues floating around at the moment. But to turn attention to today, we’ll have retail sales from EU this morning and then the ECB rate meeting where a 25bps cut to 2.65% is widely expected and already priced in, attention likely to focus on any forward guidance from Lagarde. At some stage I’m expecting her to say ‘no more rate cuts fot the foreseeable future’, whether we see that today remains to be seen. Meanwhile, Turkey are expected to announce a 2.5% cut in interest rates to 42.5% later this morning.
US challenger and initial jobless claims are released this afternoon, although tomorrow’s nonfarm payroll remains the most important data of the week. Plenty of central bank officials speaking today, at least four from the Fed, while BoEs Mann speaks later in the day although I think the text of her speech is released this afternoon. The day before nonfarms is usually a pretty quiet one, but something tells me today could be different.
Oh and if that’s not enough, Spurs are playing is the last 16 of the Europa League this evening, as are Man Utd, both teams looking to emulate the success of English clubs in the Champions League over the past couple of days.
Have a great day….
- 10.00 EU retail sales
- 11.00 CBRT rate announcement
- 12.30 US challenger job cuts
- 13.15 ECB rate announcement
- 13.30 US initial jobless claims
- 13.45 ECB press conference
- 13.45 Feds Harker speaks
- 15.00 CAD Ivey PMI
- 15.35 ECBs Lagarde speaks
- 18.00 Feds Barkin speaks
- 20.15 BoEs Mann speaks
- 20.30 Feds Waller speaks
- 00.00 Feds Bostic speaks
- 03.00 China trade balance
Comments