Trump’s Tariffs: Steel Then Reciprocal and Then Cars

February 11, 2025 1:23 PM UTC

 The 25% Steel and Aluminum tariff could have small to modest adverse inflation and GDP growth impacts on the U.S., but the prospect of reciprocal and more product and country tariffs create trade policy uncertainty/supply chain disruption and paperwork problems.  This could amplify the impact of

CBRT Increased Its End-Year Inflation Forecast from 21% to 24%

February 10, 2025 3:08 PM UTC

Bottom Line: Central Bank of Turkiye (CBRT) released its first quarterly inflation report of the year on February 7, and revised its inflation forecast for 2025. CBRT now projects that inflation will stand at 24% at the end of 2025, 12% next year and 8% in 2027. CBRT governor Karahan said the revisi

Europe: Economic Consequences of Likely Defence Build-Up

February 18, 2025 3:29 PM UTC

As Europe is forced to consider a massive and rapid ramp up to its relatively mediocre defence spending (Figure 1) as it contemplates a reduction in military support from the US, key questions emerge as the economic effect(s).  Will it boost or inhibit growth, add to inflation, and how will/should

BoE Review: Uncertain MPC Signals It Needs to be Careful

February 6, 2025 1:57 PM UTC

The latest set of BoE forecasts are notable for one major thing – an assumption that underlying growth has fallen, possible to under 1%.  This does not explain all of the higher inflation profile (Figure 1) which now only delivers a below target outcome into 2028 – the higher rates projected th

UK GDP Preview (Feb 13): Weakness Continues, if not Deepens?

February 4, 2025 4:26 PM UTC

Recent data add to already-growing questions about the UK’s economy’s apparent solidity, if not strength, as seen in sizeable q/q gains in the first two quarters of the year.  And those questions may be accentuated by the looming December GDP data where we see a flat m/m reading but, combined w

China/U.S. Trade War and next To Talks?

February 4, 2025 10:02 AM UTC

China’s targeted and measured counter tariffs against the U.S. are designed to push the U.S. towards the negotiating table on the wider issue of the U.S./China trade deficit.  Negotiating will likely start into the spring, but negotiating will be tough as the U.S. wants a phase 2 deal with new ob

President Trump: Filling in the Blanks

January 21, 2025 9:12 AM UTC

While the new executive orders from president Trump were focused on immigration and energy issues, the threat of 25% tariffs against Mexico and Canada by Feb 1 raises the stakes in North America negotiations in the coming weeks.  China tariff threats will likely become more concreate in Q1, though

Reciprocal Tariffs and Reducing Bilateral Trade Imbalances

February 17, 2025 10:28 AM UTC

·       President Trump’s executive order on reciprocal tariffs has not produced much market reaction, both as the proposals will not be delivered to the president until April 1 and the process of Commerce/U.S. Treasury and Homeland Security input is seen reducing the odds of penal tariffs.

Europe’s Gas Problem Again?

February 11, 2025 8:30 AM UTC

The ECB staff forecasts on March 6 will be revised upwards for 2025 and 2026, due to the surge in wholesale gas prices.  However, the ECB will likely take the view that 2 round effects from higher gas prices on balance are unlikely to boost core inflation (especially given wage tracker softness) an

Congress Struggles Over Budget Bill

February 5, 2025 2:48 PM UTC

The House is struggling to reach consensus on the beautiful huge 10yr budget bill, as GOP budget hawks want to see multi trillion expenditure cuts, though eventually the 10yr expenditure cuts will likely compromise around USD 0.5-1.0trn.  Tax cuts are also unlikely to match President Trump campaign

Eurozone: Trump Taking Aim at the EU?

February 5, 2025 9:06 AM UTC

President Trump has made it clear that the EU is going to face US tariffs in the not too distant future.  Admittedly, tariff threats have been used as the basis for negotiation elsewhere, this may be the case for the EU too – as was the case during Trump’s first term.  As for the EU, it does h

ECB Review: Policy Still Restrictive

January 30, 2025 2:34 PM UTC

It was always likely that the ECB verdict at this month’s Council meeting would be less resounding than that seen in December.  A fifth 25 bp discount rate cut did occur, to 2.75%, but may not have seen any demand to at least consider a larger move as was the case last month.  But the door is le

BoE Preview (Feb 6): Clearer Dovish Message to Markets?

January 28, 2025 1:46 PM UTC

Back in early December, BoE Governor Bailey suggested very openly in an FT interview that highlighted that the market path in the November forecast was conditioned on four rate cuts this year, this largely a result of inflation having come down “faster than we thought it would.”  And while the

Chart USD/CAD Update: Consolidating - background studies under pressure

January 24, 2025 4:15 PM UTC

Little change, as a tick higher in oversold intraday studies keeps near-term sentiment cautious 

Bunds and ECB Easing/Trump Tariffs

February 20, 2025 8:03 AM UTC

          It is highly likely in April that the U.S. will announce a 25% tariff on EU cars and pharmaceuticals (here) and also reciprocal tariffs against the EU. The majority could be implemented given Trump’s desire to raise revenue/dislike of the EU as well as negotiate trade deals. This

North American Summary and Highlights 19 February

February 19, 2025 8:38 PM UTC

Overview - The USD was mostly firmer, but ended off its highs after the FOMC minutes were digested. 

U.S. Treasuries and the Trump Effect

February 18, 2025 1:20 PM UTC

If the Fed convince the market that it is leaving the door open to easing and sees Fed Funds reduction multi-year, then 2yr could hold onto a small discount in the next two quarters and then swing to a small premium of 2yr to Fed Funds (Figure 1).  10yr yields will likely maintain a small to modest

Markets and Trump’s Early Days

February 10, 2025 7:55 AM UTC

  The early days of the new Trump administration has seen lots of volatility around the on-off tariffs with Canada and Mexico, but the more stable U.S. Treasury market has helped provide an anchor.  U.S. Treasuries have shift towards the view that the 10yr budget bill will be delayed until H2 and

Eurozone: The Neutral Rate – Probably Little Changed Recently Unlike Central Banks

February 7, 2025 1:14 PM UTC

A well-advertised research paper from the ECB suggests that the real neutral rate of interest for the EZ has not changed very much in the last few years but with a likely range of between -0.5% and +0.5%, but still well below estimates for what is so-called r* prior to the pandemic (Figure 1).  The

China/U.S. - Trade War or Trade Deal?

January 22, 2025 2:11 PM UTC

·       We see the April 1 review of the phase 1 U.S./China trade deal being adverse and President Trump’s carrot and stick approach leading to a 10% rise in tariffs on China imports by the summer.  We eventually see a phase 2 U.S./China trade deal being reached in Q4. The main alternative

Negotiations to End Ukraine War to Start Soon

February 13, 2025 3:03 PM UTC

Bottom Line: As we envisaged, U.S. president Trump and Russian president Putin talked over the phone on February 12 to discuss the war in Ukraine. According to sources, Trump and Putin agreed to have their teams start negotiations immediately. Under current circumstances, we foresee a Russia-friendl

Banxico Review: 50 bps Cut as Expected

February 8, 2025 9:39 PM UTC

Banxico cut the policy rate by 50bps to 10.5%, with a cautious stance and a split vote. Inflation has fallen but remains above target, expected to converge to 3.0% by Q3 2026. Global risks, including Trump’s tariff threats, add uncertainty. Despite economic weakness, some monetary tightening may s

Fixing The U.S. Trade Deficit

February 6, 2025 2:30 PM UTC

  New U.S. trade deals will likely make slow progress in reducing bilateral trade deficits as the underlying drivers behind the U.S. trade deficit are macro forces.  While the U.S. economy outperforms other major trading partners; the value of the USD remains overvalued and as long as tariffs are

Trump Tariffs, or Not: Trying to Make Sense of a Policy Farce

February 3, 2025 11:46 PM UTC

So, after a weekend and a day of drama we are back to where we were on Friday morning. Forecast updates made on the imposition of tariffs will not be thrown in the trash can, but now will be held as an alternative should Trump decide to go ahead on March 1 after postponing them from February 1 (whic

Psychology for major markets February 3rd

February 3, 2025 11:16 AM UTC

USD gains against riksier currences on tariff announcement

EZ HICP Review: Headline Rises Amid Still Friendly Core Messages?

February 3, 2025 10:38 AM UTC

There were mixed messages in the higher-than-expected January flash HICP numbers.  For a third successive month, the headline but this time by ‘only’ 0.1ppt, to a six-month high of 2.5%, but where the core (again) stayed at 2.7%, partly due to what is seemingly relatively stable services inflat

Preview: Due February 12 - U.S. January CPI - Core rate to pick up on the month but slow yr/yr

January 31, 2025 3:28 PM UTC

We expect January’s CPI to increase by 0.3% both overall and ex food and energy, with the overall figure close to 0.3% even before rounding, but the core rate rising by 0.33%, which would be the strongest monthly gain since the three months of Q1 2024 each showed monthly core rates of 0.4% (each a

Trump-Putin Meeting in Horizon, Date Still Unknown

January 27, 2025 7:01 PM UTC

Bottom Line: After Trump took the office as of January 20, we feel Ukraine war is not a priority in Trump’s agenda since he is most focused on his priorities of immigration and tariffs. We think Trump and Putin will likely meet in spring to discuss tha war in Ukraine and energy prices, and Ukraine

ECB Preview (Jan 30): A Staging Post in Easing Cycle

January 24, 2025 10:32 AM UTC

It is unlikely that the ECB verdict at this month’s Council meeting will be anything like as resounding as that seen in December.  A fifth 25 bp discount rate cut is virtually assured, to 2.75%, but may not see any demand to at least consider a larger move as was the case last month.  Admittedly

BoJ Review: Hawkish?

January 24, 2025 5:33 AM UTC

The BoJ hiked by 25bps to 0.5% in the January meeting

FX Daily Strategy: APAC, January 22nd

January 21, 2025 4:18 PM UTC

GBP may soften further, public sector borrowing figures in focus
CAD could be at risk if market starts to take tariff threat seriously
AUD continues to represent long term value
EUR and JPY both look too weak despite challenges

UK: Mixed Labor Market Signals – Yet Again

February 18, 2025 7:56 AM UTC

There is little in the latest UK labor market numbers that will ease any concerns of the BoE policy hawks.  Admittedly, inactivity and vacancies fell, both suggesting some easing in the labor market, although the former is as suspect as the (still apparently rising) ONS employment numbers due to qu

North American Summary and Highlights 14 February

February 14, 2025 8:18 PM UTC

Overview - The USD was marginally softer in Europe, and losses accelerated after weak US retail sales data. 

Revised FOMC view: One 25 bps easing in late 2025, two 25bps easings in 2026

February 13, 2025 12:46 PM UTC

Strength in January CPI does in part reflect residual seasonality, but continued stalling of progress in yr/yr growth is of concern. This revives concerns that the economy may need to slow to return inflation to the 2.0% target, something tariffs are likely to make more difficult. Uncertainty is exc

German Data Review: Mixed Inflation News but Politics Dominate?

January 31, 2025 1:28 PM UTC

As Germany faces possibly deeper and more prolonged political deadlock, its disinflation process continues, but there are signs that the downtrend is flattening out and this may be the message into the rest of 2025. Indeed, January HICP inflation stayed at 2.8% an outcome largely as expected.   Bu

Psychology for major markets January 31st

January 31, 2025 11:20 AM UTC

EUR softer on weaker CPI

U.S. Q4 GDP Led by Strong Consumer Spending

January 30, 2025 2:04 PM UTC

The 2.3% increase in Q4 GDP is little weaker than consensus expectations surveyed before yesterday’s weak trade and inventories data but the data was supported by a significantly stronger than expected 4.2% rise in consumer spending, keeping the pace of growth solid. Core PCE prices at 2.5% are on

Chart GBP/USD Update: Consolidating - support at 1.2400

January 29, 2025 8:33 AM UTC

Little change, as mixed intraday studies keep near-term sentiment cautious 

Preview: Due February 7 - U.S. January Employment (Non-Farm Payrolls) - A slower month given bad weather

January 27, 2025 6:39 PM UTC

We expect a below trend 125k increase in January’s non-farm payroll, with a 95k rise in the private sector. The data is likely to be restrained by bad weather and a possible correction from an above trend December. The workweek is likely to fall on bad weather but we expect unemployment to be unch