Market Commentary

The main currency pairs were not much changed yesterday with the euro and sterling trading in narrow ranges against the dollar either side of $1.08 and $1.29 respectively and EURGBP hovering in and around £0.8350. They are likely to continue treading water today ahead of Trump’s tariffs announcement due at 9pm Irish time tonight. Reports suggest the tariffs will be imposed widely and effective immediately, though whether the tariffs rates are uniform or differentiated(“reciprocal”) is unclear, while other countries, including the EU, have said they will retaliate with tariffs of their own.

Yesterday’s Events

After a torrid first quarter of the year, US stocks chalked up modest gains at the start of Q2 with the S&P 500 and Nasdaq up 0.4% and 0.9% respectively, while European stocks closed almost 1.5% higher. Government bonds extended their recent rally, with yields ended lower on the day, helped by some softer than expected economic data.

Inflation in the Euro area eased in March according to yesterday’s flash release. Headline inflation was in line with the consensus forecast at 2.2%, down from 2.3% in February and just shy of the 2% target, while core inflation was a touch lower than expected at 2.4%, down from 2.6% in February. The decline in core inflation was due entirely to a second consecutive fall in services inflation, to 3.4% from 3.7%, as core goods inflation was unchanged at 0.6%.

The ISM index of manufacturing activity in the US fell back into contractionary territory (<50) last month, coming in at 49.0, with tariffs a widespread concern among survey respondents. Output, new orders and employment all declined in March, while input prices rose partly reflecting the impact of recent tariff increases.

The Day Ahead

Ahead of Trump’s “Liberation Day” announcement tonight, it is quiet in terms of economic data with the ADP private employment report and capital goods orders in the US the only releases of any note.

Market Commentary

Equity markets were under pressure again yesterday though US stocks managed to rally into the close of business. Bond yields headed further south as stocks fell but they finished off their lows of the day. The dollar lost ground initially before recovering later in the session, albeit operating within narrow ranges. The euro and sterling are trading at around $1.08 and $1.29 respectively against the US currency this morning, both a touch weaker than yesterday morning, while EURGBP is little changed at around £0.8370. The release of Euro area inflation data will be a focus for markets this morning, though there’s likely to be some ‘treading of water’ ahead of the Trump tariff announcement tomorrow.

Yesterday’s Events

Elsewhere in markets, UK 10-year bond  yields rose yesterday, more than reversing Wednesday’s fall following soft inflation data, though 2-year yields ended marginally lower. US yields were similarly mixed, with 2-year yields a touch lower but 10-year yields a little higher, while German yields fell across the curve led by a decline in 2-year yields (of circa 6bps). Meanwhile, equity markets headed further south, as they continue to be unnerved by Trump’s tariffs, though losses across US and European stocks were relatively modest at around half a percent.

Ahead of Euro area inflation data this morning, inflation in Germany eased for a second consecutive month in March according to yesterday’s flash release, falling to 2.3% from 2.6% in February. Core inflation – excluding food and energy prices – looks to have fallen last month too, helped by another decline in services inflation.

According to a Bloomberg report yesterday, the ECB Governing Council is undecided about cutting interest rates again at this month’s meeting (April 17th), with the more dovish members of the Council willing to stay on hold if more time is needed “to assess data”. The market pared back expectations for a cut slightly following the report, though it still sees about a 70% chance of a 25bps reduction in the deposit rate.

The Day Ahead

Today’s Euro area inflation data are expected to show headline and core inflation eased to 2.2% and 2.5% in March (from 2.4% and 2.6% in February), according to the consensus forecast. Other data due include Euro area unemployment and job openings and the ISM manufacturing index in the US.

Market Commentary

Bonds rallied strongly on Friday as equity markets sold off sharply ahead of Trump’s reciprocal tariffs announcement this week (with the rout in stocks continuing in Asian trading overnight). In this context, it was relatively calm in FX with the main currency pairs not much changed on Friday, nor indeed on the week as a whole, though the euro gained a little ground against both the dollar and sterling. The single currency is trading at around $1.0840 and £0.8360 respectively this morning, while the pound has edged up over $1.2950 against the dollar. While “Liberation Day” on Wednesday will be the main focus for markets this week, there’s some important economic data due too including Euro area inflation (Tuesday) and the US employment report (Friday).

Yesterday’s Events

US Treasuries led the rally in bonds on Friday with 10-year yields declining by around 10bps on the day, while equivalent UK and German yields fell by 8bps and 5bps respectively. Yields are lower again this morning as equity markets remain on the back foot. The Nikkei in Japan was down almost 4% lower overnight, while European stocks are off 1% at the start of play today after shedding 1% on Friday. US stocks look set to open lower later today too, after sharp losses on Friday, led by the Nasdaq which fell by almost 3%.

Friday’s inflation data in the US were a touch firmer than expected. Headline and core PCE prices rose by 0.3% and 0.4% respectively in February, leaving the annual rate of headline inflation unchanged at 2.5% but pushing the core rate up to 2.8% (the latter has been stuck in a range of 2.6% to 2.9% since April last year). The data will reinforce the Fed’s view, which was reiterated by a number of members last week, that it is appropriate to keep interest rates on hold for now.

Economic confidence in the Euro area remains relatively subdued according to the European Commission’s latest Economic Sentiment Indicator. It fell back in March, led by a notable decline in confidence in the services sector, and remains consistent with a continuation of just modest economic growth in the zone.

The Day Ahead

Looking to the day ahead, it is relatively quiet on the data front with mortgage approvals & lending for February in the UK. As mentioned, Euro area inflation for March is due tomorrow, as is the ISM index of manufacturing in the US, while later in the week, the ISM services index is published on Thursday ahead of the key employment (payrolls) report on Friday.

Market Commentary

The expectation that Donald Trump would announce a 25% tariff on auto imports, which he duly delivered, weighed on equity markets yesterday, while the dollar rose to highs of circa $1.0730 and $1.2870  against the euro and sterling respectively though it has since eased back to around $1.0760 and $1.29. The euro continues to drift down against the pound, trading at £0.8335 this morning, the lower end of the range of about £0.8240 to £0.8475 that has prevailed since the start of the year.

Yesterday’s Events

In equity markets, the S&P 500 in the US shed around 1% while European stocks lost a bit more than 1%, with the latter down another 1% at the open this morning. In government bond markets, UK yields ended marginally lower on the back of softer than expected inflation data, with the Chancellor’s Spring Statement having little impact, while US yields were marginally higher on the day. German yields, which finished broadly flat yesterday, are lower at the start of play today.

In addition to the announcement of 25% tariffs on autos (effective 3 April) and auto parts (effective no later than 3 May), Donald Trump also said “we’ll be doing tariffs on pharmaceuticals in order to bring our industry back” (to the US). Meanwhile, ahead of the expected announcement of reciprocal tariffs next Tuesday, the Financial Times reports that the “assessment” of the EU’s trade commissioner (following talks in Washington) is that tariffs of about 20% will be imposed on the EU.

The OBR has halved its forecast for GDP growth in the UK this year, to 1% from 2%, citing “a more challenging and uncertain (economic) outlook.” It also projected that absent the corrective action (mainly spending cuts) announced in her Spring Statement, the Chancellor would have breached her fiscal rule that the current budget should be in balance or surplus in 2029-30. A surplus of £9.9bn (0.3% of GDP) is now projected for 2029-30, the same as in October, though as the OBR notes, this “headroom” remains “a small margin against the risk of further shocks to interest rates, productivity, or global trade.”

The Day Ahead

For the day ahead, economic data scheduled include money supply & credit growth in the Euro area – the ECB is closely watching the latter to see how lower interest rates are transmitting to lending in the economy – and jobless claims and a final estimate of Q4 2024 GDP in the US.

Market Commentary

The main currency pairs are not much changed from yesterday morning. The euro continues to hover just below the $1.08 level against the dollar and is trading at around £0.8370 against sterling, while the latter has dipped below $1.29 against the US currency. UK inflation data released a short while ago were weaker than the consensus forecast, which is weighing on the pound.

Yesterday’s Events

US bond yields nudged down a touch yesterday, partly on the back of some soft economic data, while German and UK yields were marginally higher on the day. In equity markets, European stocks rose by around 1%, largely playing catch-up with Monday’s gains in US equities, while the latter ended with small gains yesterday.

Headline CPI inflation in the UK fell back in February according to this morning’s release, declining to 2.8% from 3% in January, while the core rate also fell, to 3.5% from 3.7%, both a little lower than the consensus forecast (3% and 3.6% respectively). Within core, following a string of increases, goods inflation fell last month, to 1.1% from 1.6%, helped by a large decline in clothing and footwear price inflation, but services inflation remained unchanged and still elevated at 5%, which will be of some concern to the Bank of England.

In the US, consumer confidence declined for a fourth consecutive month in March according to the Conference’s Board measure. Consumers’ expectations were “especially gloomy, with pessimism about future business conditions deepening and confidence about future employment prospects falling to a 12-year low.”

The Day Ahead

For the day ahead, it’s relatively quiet in terms of economic data with durable goods orders in the US the only release of note. In the UK, Chancellor Rachel Reeves delivers her Spring Statement in Parliament, where she is expected to announce spending cuts of circa £10bn as she attempts to meet her fiscal rules.