Trump upsets markets with auto tariffs

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place at the weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 30th when we change our clocks in the UK.

Chancellor Reeves’s spring statement came and went with little fuss yesterday but there is growing feeling that she will need to riase taxes in the autumn if she is to stay within her own fiscal rules.  GBPUSD traded a touch lower as she spoke but only to 1.2880 or so and spent the rest of the day between there and 1.2900.  A bout of tariff-related USD buying into the NY close took the pair down to 1.2865 but we have seen a mild turnaround overnight and as I type GBPUSD is at 1.2910.  GBP continues to find support against EUR, with GBPEUR just a few pips off 1.2000.

ECBs Centeno said there seems no reason why ECB would pause rate cuts at the April meeting.  ECBs Kazaks was the latest ECB official to talk of possible further rate cuts but did stress that uncertainty remains very high, predominantly due to the geopolitical situation.  We hear from several ECB officials today including Lagarde but I’d be surprised if we hear anything truly out of the ordinary.

Equity markets took a dislike to Trump’s announcement of tariffs on auto imports yesterday, although UK’s FTSE stood out as one of the few indices in positive territory, presumably the disappearance of most of the UK’s car manufacturing brands means we are less impacted than others.  Trump has warn Canada and EU that they will face consequences if they work together to harm US interests.  Canada and EU have certainly looked closer in recent weeks as Trump looks to clamp down on both countries.

In Ukraine, Zelensky has said he hopes US don’t back down to Russian demands over the removal of sanctions before a ceasefire can take place.  France’s Macron has also said it is too early to talk of any lifting of sanctions, with the EU rejecting such a move without a complete Russian withdrawal.  He also said that Russia can have no say in how Europe supports Ukraine in the future,  Peace is a long way off.  Meanwhile US say Ukraine are reviewing an economic proposal that could be signed off within a week or so.

Other than the ECB officials speaking today its really only the US data to look out for.  Q4 GDP will be released, I believe this is the third estimate so mildly less interesting than the provisional release.  Jobs data in the form of initial claims is also released.  Meanwhile, we’ll all be on the edge of our seats waiting for the to see if we get the next instalment in the Trump tariff saga.  UK retail sales and GDP will be out early tomorrow morning.

Have a great day….

-  12.30 US GDP, personal income/expenditure, initial jobless claims

-  13.00 ECBs de Guindos, Villeroy speak

-  14.00 US pending home sales

-  17.40 ECBs Schnabel speaks

-  18.05 ECBs Lagarde speaks

-  20.30 Feds Barkin speaks

-  23.30 Japan Tokyo CPI

-  07.00 UK GDP, retail sales

GBP down as UK inflation slips lower, next up Rachel Reeves

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place at the weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 30th when we change our clocks in the UK.

I’d suggested we might see a quiet day yesterday and indeed that was broadly the case. GBPUSD saw fairly tight ranges between 1.2935 and 1.2960 through most of the day, this morning that range has been broken to the downside after the UK inflation release showed prices had dropped by more than expected to 2.8% from 3% last time, with core CPI dropping to 3.4% from 3.6%.  Good news, but still well above target and widely expected to pick up again later this year as the impact of the October budget take effect.  GBPUSD is a smidge below 1.2900, an area we have tested a few times this week already, while GBPEUR, which had touched 1.2000 just before the release, also fell, currently standing at 1.1955.

ECB’s Villeroy has said ECB rates could fall as low as 2% by September. Meanwhile Trump has voiced unhappiness with the EU, following on from the rather derogatory comments made on the leaked group chat earlier in the week.  Trump has said the EU is a freeloader and has acted terribly with regard to trade with the US.  Elsewhere, Vance will be travelling to Greenland, a trip officials in Greenland have called disrespectful, as the US continue to talk about taking the country out of Denmark’s hands.  I’m not sure Vance is the right guy to go schmoozing.

There was some excitement over headlines that Russia and Ukraine had agreed to a ceasefire in the Black Sea which will allow safe transit for commercial ships in the area.  However it seems that Russia have added some conditions to the deal, including reconnecting some Russian banks to the Swift payment system, which are unlikely to be met.  Trump has said it is possible Putin will drag his feet on ceasefire plans, which shouldn’t come as a surprise to anyone.

Aussie CPI overnight came in lower than expected which sent AUD a touch lower but it is the threat of tariffs that remains the biggest driver of AUD right now.  AUDUS traded down from 0.6310 to 0.6280 overnight but has since lifted to 0.6320.  GBPAUD is just around 2.0400 having seen a spike overnight up to 2.0580, half of those losses coming since the UK inflation release.

It’s another sparse economic calendar today, US durable goods the key release along with a couple of Fed speakers.  At 12:30 we’ll hear from Chancellor Reeves who is expected to announce spending cuts in order to meet the government’s own ‘non-negotiable’ fiscal rules without raising taxes .  With the OBR likely to cut growth forecasts there is a concern that these self-imposed fiscal rules may need to be broken, which of course wouldn’t go down very well at all.  Rising borrowing costs for the government are a real worry, hopefully we won’t see a repeat of the Truss/Kwarteng debacle back in late 2022.

Have a great day…

-  10.00 ECBs Villeroy

-  12.30 UK spring statement

-  12.30 OBR forecasts

-  12.30 US durable goods

-  14.00 SNB quarterly bulletin

-  14.00 Feds Kashkari speaks

-  14.10 Feds Musalem speaks

-  18.00 ECBs Cipollone speaks

Markets await any Ukraine peace news, look to UK budget tomorrow

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place at the weekend. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 30th when we change our clocks in the UK.

I mentioned yesterday the reverse correlation between EURUSD and US equities, and we saw more evidence of this yesterday when S&P500 rose 1.75%, while EURUSD fell back below 1.0800.  GBPUSD was also well of its highs but still performed better than Euro, GBPEUR touching 1.1980 at one point in afternoon trading and although GBPUSD was back down at 1.2900 into the London close, GBP held most of its gains against EUR. 

As I type EURUSD is testing the 1.0780 area, GBPUSD is hovering just above 1.2900, with GBPEUR 1.1970.  The talk of more targeted rather than sweeping tariffs certainly helped US equity markets recover, even the much beleaguered Tesla shares made an impressive 12%

We had PMIs from EU, UK and US yesterday, UK and US numbers were remarkably similar in that services and composite numbers were better than expected, but manufacturing slipped below expectations, while in the EU it was the other way round, with services lower but manufacturing and composite a touch better.

Trump has expressed his wishes that Fed will lower interest rates, although Feds Bostic has said he sees only one more Fed cut this year rather than his previous thinking of two cuts, as the imposition of tariffs will have an upside impact on inflation.  He can’t see inflation back to 2% target until 2027.

Talks between US and Russian officials continued through the day, but there were plenty of reports of continued Russian missile attacks on Ukrainian cities, hardly a sign of peace, but I have to say some Ukrainian attacks on a Russian oil station was also reported.  A joint US/Russian statement is due to be released around 8am this morning.  I still feel that US are more interested in ensuring they have access to Ukraine’s mineral reserves than a real lasting peace deal.

Plenty of headlines around the US ‘secret’ security group chat where military plans were discussed openly with a journalist who had been accidentally added to the group.  What was interesting was Vance’s comments on the group chat, where he said ‘I just hate bailing Europe out again’.  He was the spark that ignited the recent Trump/Zelensky press conference.  OK, very pro-US but Perhaps it is indeed the right time for Europe to be bolstering its own military capabilities.

England managed a 3-0 win over Latvia yesterday, another win under Tuchel’s belt although another performance that lacked the spark we were hoping to see.  Still, this is the international arena and while we have some good players I’m not sure we have many truly ground-breaking players, so sparks may be few and far between.  Winning is what is important and that we have done with the minimum of fuss. 

Not the most interesting calendar today, I am wondering if we’ll see a day of consolidation unless we get some major Ukraine or tariff news.  Tomorrow brings the UK budget where a funding shortfall and spending cuts are likely to be announced.  OBR are expected to slash the UK’s 2025 GDP forecast from 2% to 1%. 

Before then, UK inflation numbers are early tomorrow morning.  Reeves has said that UK is positioned well to benefit from favourable trade relations with both US and EU.  This should be quite true, although to be honest I can’t see either US or EU wanting to help the UK out in any major way and I’m not sure it’s a reason to buy GBP.  Higher borrowing costs for the UK and an uncertain outlook make, if anything, GBP a bit fragile.

The sun is shining although still not as warm as I’d like.  Still, I’m up in the City for some meetings today and as long as its dry I’ll be happy.   

Have a great day…

-  09.00 German IFO

-  12.40 Feds Kugler speaks

-  13.00 US house price index

-  13.05 Feds Williams speaks

-  14.00 US consumer confidence, new home sales

-  16.00 ECBs Nagel speaks

-  00.30 AUS CPI

-  07.00 UK CPI, RPI, PPI