US longer-dated bond yields are higher, US stocks lower and the dollar weaker amid the fallout from the US credit rating downgrade and related concerns about Trump’s “One Big Beautiful (Tax) Bill”, currently moving through Congress, which will add to the country’s deficits and debt over the coming years. The dollar has fallen to around $1.1330 and $1.3440 versus the euro and sterling respectively, while the pound has nudged up to around £0.8425 against the euro (from earlier lows close to £0.8450) following the release of firmer than expected UK inflation data a short while ago.
Yesterday’s Events
Government bond yields are a touch higher this morning on the back of reports of a potential Israeli attack on Iran’s nuclear facilities, which has also contributed to an increase in oil prices (Brent crude is up almost a dollar to just over $66 p/b). US 10- and 30 yields rose by 5bps and 7bps respectively yesterday, with 30-year yields now back at 5% and close to the highs they reached at the start of the week following the Moody’s rating downgrade. In equity markets, the S&P 500 in the US shed almost 0.5% while European stocks added around 0.5%, though the latter have opened in negative territory this morning.
In the UK, the annual rate of headline CPI inflation reaccelerated to 3.5% in April from 2.6% in March, a slightly sharper increase than the consensus forecast but broadly as expected by the Bank of England. Core inflation (excluding food and energy prices) rose to 3.8% from 3.4%, while services inflation jumped to 5.4% from 4.7%. The rise in inflation last month reflected a number of regulated price increases, including electricity and gas, water charges and vehicle excise duty. Moreover, there was a 27.5% increase in airfares in April (from March), the second highest monthly rise for an April since records began, which contributed significantly to the jump in services inflation.
Fed member Musalem says “tariffs are likely to dampen economic activity and lead to some further softening of the labour market, even after the de-escalation (between the US and China) of May 12.” He also says the central bank “must maintain the public’s confidence about keeping up the fight against inflation” (which is likely to increase as a result of tariffs), indicating he supports leaving interest rates on hold for now.
The Day Ahead
It is extremely quiet for the rest of the day in terms of economic data with little or nothing of note due. On the central bank front, a number of ECB members are scheduled to speak over the course of the day.
Author: Brian Tim Moore
Tel: 1800 30 30 03 / +353 (0)1 790 0000
20 May 2025
Today's Talking Points 20.05.2025
Market Commentary
Notwithstanding a decent rebound in US bond and equity markets, the dollar remains under pressure following Moody’s credit rating downgrade. It is trading at around $1.1270 and $1.3380 against the euro and sterling respectively this morning, only marginally off yesterday’s lows (of about $1.1290 and $1.34). EURGBP is largely unchanged as it continues to hover just above the £0.84 level, with yesterday’s EU-UK deal having little or no impact on the pair.
Yesterday’s Events
US bonds recovered quite strongly from an initial credit downgrade-related sell-off, with 10-year yields falling by some 10bps from their peak levels to end slightly lower on the day. Equivalent German and UK yields also reversed an earlier increase to finish flat to marginally higher overall. It was much the same story in equity markets. US stocks ended unchanged, having been down more than 1% at one stage, while European stocks also finished flat on the day.
The European Commission has lowered its forecasts for Euro area growth and inflation in light of recent developments in US trade policy. It now expects the economy to expand by 0.9% this year, revised down from 1.3% in last autumn’s projections, and by 1.4% in 2026, revised from 1.6%. The Commission expects inflation in the zone to average 2.1% this year, unchanged from its previous forecast, and 1.7% next year, lowered from 1.9%. Inflation is seen dipping below the ECB’s 2% target in the final quarter of this year and remaining below 2% through all of 2026.
Fed member Williams says it will take time to assess the impact of tariffs on US growth and inflation, noting that “it’s not going to be that in June or July we’re going to understand what’s happening” in the economy. This suggests the central bank intends keeping interest rates on hold for a while longer yet. Indeed, the market is currently not pricing in a full quarter-point cut in rates until the final quarter of this year.
The Day Ahead
It’s a relatively quiet day ahead in terms of economic data, with consumer confidence and construction output in the Euro area the only releases of any note.
Author: Brian Tim Moore
Tel: 1800 30 30 03 / +353 (0)1 790 0000
19 May 2025
Today's Talking Points 19.05.2025
Market Commentary
The dollar chalked up modest gains against the euro and sterling on Friday, reaching intra-day highs of around $1.1130 and $1.3245 respectively, following the release of firmer than expected US inflation-related data. However, it has retreated again following Moody’s one-notch downgrade to the US triple A credit rating, announced after the close of business on Friday, trading at around $1.1240 and $1.3360 this morning. EURGBP is hovering just north of £0.84, having shed around half a penny last week, ahead of today’s UK-EU summit in London, which is not expected to deliver much in the economic area at least.
Yesterday’s Events
US government 10-year bond yields are inching higher following the Moody’s downgrade. 10-year yields are back above 4.50%, bringing the cumulative increase since last Monday’s announcement of the US-China trade ‘deal’ to almost 15bps. Equivalent UK and German yields have seen more modest increases over the same period, of about 8bps and 3bps respectively. Meanwhile, US equity markets rallied impressively last week on the back of the US-China deal, with the S&P 500 gaining 5%, while European stocks saw gains of around 2%.
Moody’s downgrade to the US credit rating (from Aaa to Aa1) follows similar moves by S&P and Fitch. Not surprisingly, Moody’s cites concerns about the country’s deficit/debt position as the reason for the downgrade. It says it expects “Federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased debt interest payments on debt, rising entitlement spending and relatively low revenue generation.”
Staying with the US, the latest University of Michigan survey showed another fall in consumer confidence in May and another increase in consumers’ inflation short- and medium/long-term inflation expectations. The latter increased to 4.6% from 4.4% in April and a low of 3% as recently as December, reflecting households concerns about the impact of tariffs on consumer prices.
In an FT interview, ECB member Wunsch said developments since Trump’s tariff announcements in April have created clear downside risks to inflation in the Euro area, adding that the central bank may have to cut interest rates to “slightly below” 2%. His colleague Schnabel was more circumspect in comments over the weekend though, saying that “we can leave rates broadly at the level they are at now and are confident that we can also maintain price stability in this way.” The market last week pared back expectations for ECB cuts, with circa 50bps now priced in for the rest of this year.
The Day Ahead
Looking to the week ahead, the main economic data releases include flash PMIs for May in the main economies on Thursday, and CPI inflation and retail sales in the UK on Wednesday and Friday respectively. Meanwhile, the European Commission publishes its Spring Economic Forecasts later today.
Author: Brian Tim Moore
Tel: 1800 30 30 03 / +353 (0)1 790 0000
16 May 2025
Today's Talking Points 16.05.2025
Market Commentary
Softer than expected US economic data contributed to a sharp enough decline in bond yields yesterday, though the dollar didn’t do a whole lot. It is not much changed from yesterday morning’s levels against the euro and sterling, trading just north of $1.12 and $1.3320 respectively. The pound is marginally firmer against the euro at about £0.8415.
Yesterday’s Events
US bond yields fell by around 10bps in the case of both 2- and 10-year yields, while equivalent German yields were 7-8bps lower and UK yields down about 3-4bps. Yields generally are edging lower again at the start of play today. In equity markets, gains were relatively modest with European stocks advancing by around 0.3% and the S&P 500 in the US adding about 0.4%.
The US economic data published yesterday were generally on the weaker side of expectations. Retail sales were little changed in April, though there was an upward revision to spending in March, while manufacturing output fell last month having posted solid gains in the first quarter of the year. Producer prices were a good bit weaker than forecast, with both headline and core prices falling in April. The labour market is still performing well though, judging by the continuing relatively low level of new jobless claimants.
The Euro area economy grew slightly more slowly in Q1 2025 than previously estimated, with GDP increasing by a still solid 0.3% on a quarter-on-quarter basis (revised from 0.4%). Employment increased again in the quarter, with the pace of jobs growth picking up to 0.3% (q-o-q) from 0.1% in the final quarter of last year.
ECB member Kazaks says the central bank is “relatively close to the terminal rate” for interest rates, adding that there may be a “couple” more reductions in the deposit rate from the current level of 2.25%.
The Day Ahead
In terms of economic data for the day ahead, consumer confidence/inflation expectations, housing starts, and import prices are due in the US, while the trade balance is scheduled in the Euro area.
Author: Brian Tim Moore
Tel: 1800 30 30 03 / +353 (0)1 790 0000
15 May 2025
Today's Talking Points 15.05.2025
Market Commentary
The euro and sterling rose to highs of around $1.1270 and $1.3360 against the dollar yesterday, before retreating as the latter got some support from rising US bonds yields. They are trading at about $1.12 and $1.3290 respectively this morning, which in turn sees EURGBP a touch firmer at around £0.8430. First-quarter GDP data in the UK released a short while ago have come in slightly stronger than expected, but they’ve had little impact on the pound.
Yesterday’s Events
US bond yields backed up yesterday, partly reflecting some further paring back of Fed rate cut expectations, with 2- and 10-year yields rising by 5-7bps. Equivalent UK yields increased by 4-5bps, while German yields were marginally higher on the day. Less than 50bps in rate cuts over the remainder of this is now priced in for the Fed, ECB and Bank of England. In equity markets, European stocks ended lower for the first day in five, shedding around 0.5%, while US indices had another mixed session, with the Dow Jones lower again and the S&P 500 broadly flat but the Nasdaq advancing further (+0.7%).
The UK economy grew by 0.7% q-o-q, and by 1.3% y-o-y, in the first quarter of this year according to this morning’s release, a touch firmer than expected (+0.6%), with relatively strong gains in business investment (+5.9%) and exports (+3.5%) but modest growth in consumer spending (+0.2%), down from +0.5% in Q4 2024). Weak survey data for a April, which showed negative tariffs-related effects on activity and confidence, points to slower growth in the Q2.
Fed Vice-Chair Jefferson notes that “consumer and business sentiment have declined sharply this year” which could result in “weakening economic activity”, while “at the same time higher tariffs could lead to higher inflation” with uncertainty as to whether this would be “temporary or persistent.” Like other Fed colleagues, he says it’s appropriate to keep interest rates on hold for now.
The Day Ahead
It’s a busy data ahead in terms of economic data. In the US, releases include retail sales, industrial production, producer prices and jobless claims, while first-quarter GDP (2nd estimate) and employment are due in the Euro area.
Dealer Comments
Today's Talking Points 21.05.2025
Market Commentary
US longer-dated bond yields are higher, US stocks lower and the dollar weaker amid the fallout from the US credit rating downgrade and related concerns about Trump’s “One Big Beautiful (Tax) Bill”, currently moving through Congress, which will add to the country’s deficits and debt over the coming years. The dollar has fallen to around $1.1330 and $1.3440 versus the euro and sterling respectively, while the pound has nudged up to around £0.8425 against the euro (from earlier lows close to £0.8450) following the release of firmer than expected UK inflation data a short while ago.
Yesterday’s Events
Government bond yields are a touch higher this morning on the back of reports of a potential Israeli attack on Iran’s nuclear facilities, which has also contributed to an increase in oil prices (Brent crude is up almost a dollar to just over $66 p/b). US 10- and 30 yields rose by 5bps and 7bps respectively yesterday, with 30-year yields now back at 5% and close to the highs they reached at the start of the week following the Moody’s rating downgrade. In equity markets, the S&P 500 in the US shed almost 0.5% while European stocks added around 0.5%, though the latter have opened in negative territory this morning.
In the UK, the annual rate of headline CPI inflation reaccelerated to 3.5% in April from 2.6% in March, a slightly sharper increase than the consensus forecast but broadly as expected by the Bank of England. Core inflation (excluding food and energy prices) rose to 3.8% from 3.4%, while services inflation jumped to 5.4% from 4.7%. The rise in inflation last month reflected a number of regulated price increases, including electricity and gas, water charges and vehicle excise duty. Moreover, there was a 27.5% increase in airfares in April (from March), the second highest monthly rise for an April since records began, which contributed significantly to the jump in services inflation.
Fed member Musalem says “tariffs are likely to dampen economic activity and lead to some further softening of the labour market, even after the de-escalation (between the US and China) of May 12.” He also says the central bank “must maintain the public’s confidence about keeping up the fight against inflation” (which is likely to increase as a result of tariffs), indicating he supports leaving interest rates on hold for now.
The Day Ahead
It is extremely quiet for the rest of the day in terms of economic data with little or nothing of note due. On the central bank front, a number of ECB members are scheduled to speak over the course of the day.
20 May 2025
Today's Talking Points 20.05.2025
Market Commentary
Notwithstanding a decent rebound in US bond and equity markets, the dollar remains under pressure following Moody’s credit rating downgrade. It is trading at around $1.1270 and $1.3380 against the euro and sterling respectively this morning, only marginally off yesterday’s lows (of about $1.1290 and $1.34). EURGBP is largely unchanged as it continues to hover just above the £0.84 level, with yesterday’s EU-UK deal having little or no impact on the pair.
Yesterday’s Events
US bonds recovered quite strongly from an initial credit downgrade-related sell-off, with 10-year yields falling by some 10bps from their peak levels to end slightly lower on the day. Equivalent German and UK yields also reversed an earlier increase to finish flat to marginally higher overall. It was much the same story in equity markets. US stocks ended unchanged, having been down more than 1% at one stage, while European stocks also finished flat on the day.
The European Commission has lowered its forecasts for Euro area growth and inflation in light of recent developments in US trade policy. It now expects the economy to expand by 0.9% this year, revised down from 1.3% in last autumn’s projections, and by 1.4% in 2026, revised from 1.6%. The Commission expects inflation in the zone to average 2.1% this year, unchanged from its previous forecast, and 1.7% next year, lowered from 1.9%. Inflation is seen dipping below the ECB’s 2% target in the final quarter of this year and remaining below 2% through all of 2026.
Fed member Williams says it will take time to assess the impact of tariffs on US growth and inflation, noting that “it’s not going to be that in June or July we’re going to understand what’s happening” in the economy. This suggests the central bank intends keeping interest rates on hold for a while longer yet. Indeed, the market is currently not pricing in a full quarter-point cut in rates until the final quarter of this year.
The Day Ahead
It’s a relatively quiet day ahead in terms of economic data, with consumer confidence and construction output in the Euro area the only releases of any note.
19 May 2025
Today's Talking Points 19.05.2025
Market Commentary
The dollar chalked up modest gains against the euro and sterling on Friday, reaching intra-day highs of around $1.1130 and $1.3245 respectively, following the release of firmer than expected US inflation-related data. However, it has retreated again following Moody’s one-notch downgrade to the US triple A credit rating, announced after the close of business on Friday, trading at around $1.1240 and $1.3360 this morning. EURGBP is hovering just north of £0.84, having shed around half a penny last week, ahead of today’s UK-EU summit in London, which is not expected to deliver much in the economic area at least.
Yesterday’s Events
US government 10-year bond yields are inching higher following the Moody’s downgrade. 10-year yields are back above 4.50%, bringing the cumulative increase since last Monday’s announcement of the US-China trade ‘deal’ to almost 15bps. Equivalent UK and German yields have seen more modest increases over the same period, of about 8bps and 3bps respectively. Meanwhile, US equity markets rallied impressively last week on the back of the US-China deal, with the S&P 500 gaining 5%, while European stocks saw gains of around 2%.
Moody’s downgrade to the US credit rating (from Aaa to Aa1) follows similar moves by S&P and Fitch. Not surprisingly, Moody’s cites concerns about the country’s deficit/debt position as the reason for the downgrade. It says it expects “Federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased debt interest payments on debt, rising entitlement spending and relatively low revenue generation.”
Staying with the US, the latest University of Michigan survey showed another fall in consumer confidence in May and another increase in consumers’ inflation short- and medium/long-term inflation expectations. The latter increased to 4.6% from 4.4% in April and a low of 3% as recently as December, reflecting households concerns about the impact of tariffs on consumer prices.
In an FT interview, ECB member Wunsch said developments since Trump’s tariff announcements in April have created clear downside risks to inflation in the Euro area, adding that the central bank may have to cut interest rates to “slightly below” 2%. His colleague Schnabel was more circumspect in comments over the weekend though, saying that “we can leave rates broadly at the level they are at now and are confident that we can also maintain price stability in this way.” The market last week pared back expectations for ECB cuts, with circa 50bps now priced in for the rest of this year.
The Day Ahead
Looking to the week ahead, the main economic data releases include flash PMIs for May in the main economies on Thursday, and CPI inflation and retail sales in the UK on Wednesday and Friday respectively. Meanwhile, the European Commission publishes its Spring Economic Forecasts later today.
16 May 2025
Today's Talking Points 16.05.2025
Market Commentary
Softer than expected US economic data contributed to a sharp enough decline in bond yields yesterday, though the dollar didn’t do a whole lot. It is not much changed from yesterday morning’s levels against the euro and sterling, trading just north of $1.12 and $1.3320 respectively. The pound is marginally firmer against the euro at about £0.8415.
Yesterday’s Events
US bond yields fell by around 10bps in the case of both 2- and 10-year yields, while equivalent German yields were 7-8bps lower and UK yields down about 3-4bps. Yields generally are edging lower again at the start of play today. In equity markets, gains were relatively modest with European stocks advancing by around 0.3% and the S&P 500 in the US adding about 0.4%.
The US economic data published yesterday were generally on the weaker side of expectations. Retail sales were little changed in April, though there was an upward revision to spending in March, while manufacturing output fell last month having posted solid gains in the first quarter of the year. Producer prices were a good bit weaker than forecast, with both headline and core prices falling in April. The labour market is still performing well though, judging by the continuing relatively low level of new jobless claimants.
The Euro area economy grew slightly more slowly in Q1 2025 than previously estimated, with GDP increasing by a still solid 0.3% on a quarter-on-quarter basis (revised from 0.4%). Employment increased again in the quarter, with the pace of jobs growth picking up to 0.3% (q-o-q) from 0.1% in the final quarter of last year.
ECB member Kazaks says the central bank is “relatively close to the terminal rate” for interest rates, adding that there may be a “couple” more reductions in the deposit rate from the current level of 2.25%.
The Day Ahead
In terms of economic data for the day ahead, consumer confidence/inflation expectations, housing starts, and import prices are due in the US, while the trade balance is scheduled in the Euro area.
15 May 2025
Today's Talking Points 15.05.2025
Market Commentary
The euro and sterling rose to highs of around $1.1270 and $1.3360 against the dollar yesterday, before retreating as the latter got some support from rising US bonds yields. They are trading at about $1.12 and $1.3290 respectively this morning, which in turn sees EURGBP a touch firmer at around £0.8430. First-quarter GDP data in the UK released a short while ago have come in slightly stronger than expected, but they’ve had little impact on the pound.
Yesterday’s Events
US bond yields backed up yesterday, partly reflecting some further paring back of Fed rate cut expectations, with 2- and 10-year yields rising by 5-7bps. Equivalent UK yields increased by 4-5bps, while German yields were marginally higher on the day. Less than 50bps in rate cuts over the remainder of this is now priced in for the Fed, ECB and Bank of England. In equity markets, European stocks ended lower for the first day in five, shedding around 0.5%, while US indices had another mixed session, with the Dow Jones lower again and the S&P 500 broadly flat but the Nasdaq advancing further (+0.7%).
The UK economy grew by 0.7% q-o-q, and by 1.3% y-o-y, in the first quarter of this year according to this morning’s release, a touch firmer than expected (+0.6%), with relatively strong gains in business investment (+5.9%) and exports (+3.5%) but modest growth in consumer spending (+0.2%), down from +0.5% in Q4 2024). Weak survey data for a April, which showed negative tariffs-related effects on activity and confidence, points to slower growth in the Q2.
Fed Vice-Chair Jefferson notes that “consumer and business sentiment have declined sharply this year” which could result in “weakening economic activity”, while “at the same time higher tariffs could lead to higher inflation” with uncertainty as to whether this would be “temporary or persistent.” Like other Fed colleagues, he says it’s appropriate to keep interest rates on hold for now.
The Day Ahead
It’s a busy data ahead in terms of economic data. In the US, releases include retail sales, industrial production, producer prices and jobless claims, while first-quarter GDP (2nd estimate) and employment are due in the Euro area.