US confidence dented as Trump looks for more tariffs

Good morning

We had GBPUSD up to 1.2675 and EURUSD to almost 1.0520, helped in no small part by a shocking US consumer confidence number that came in at 98.3, well below consensus (102.5) and even further below the previous reading of 105.3.  GBPUSD has actually tested that 1.2675 area several times since yesterday afternoon, each time it has failed and pulled back, this morning the pullback reached 1.2635 but as I type GBPUSD is 1.2655.  EURUSD has also failed to break the recent highs around 1.0525 which in turn is just a few points off the 2024 highs we saw back on 27th Jan.  GBPEUR holds around 1.2050. 

Plenty of attention on weak incoming US data, with growing concern over next weeks US employment numbers which could be dented by the layoffs in US public workers.  Quite when some of these layoffs appear in employment numbers isn’t exactly clear, tomorrows initial jobless claims numbers may reflect some but certainly not all of the job losses.  Equity prices have been hit with Nasdaq down 1.35% yesterday, S&P500 lost around 0.5%.  Attention turns to Nvidia who will release results this evening, their stock is down from a Feb high of $143.35 to $126.55.   

USDJPY traded down to 148.60 on the weaker USD yesterday, pretty much matching the lows seen in early Dec, and traded again to that level overnight before recovering to the 149.40 region.  Some talk that US have voiced unhappiness with the weak Yen and pressure could be growing for Japan to normalise interest rates, as such there is thinking that we could see USDJPY lower still, something in the low 146’s is a possible target.  As always with Yen, timing is everything given the forward points remain very much against us which makes holding yen longs or long yen options rather expensive.  A one month 146.00 USDJPY put costs around 90 yen pips.

USDCAD has pushed higher, bucking the weaker USD trend, now 1.4325, up from 1.4255 this time yesterday.  Too early to be excited about profits in this but the markets seem to be catching the idea that next week Trump may well look to introduce the tariffs he began to implement earlier this month.  USDMXN has remained interestingly stable mind you, now 20.45, bang in the middle of the recent 20.40-20.50 range, bar a couple of brief forays outside those levels. 

It looks as though Ukraine are very close to signing a deal with US for its rare earth minerals, with talk Trump may meet Ukraine’s Zelensky later this week.  Trump has mentioned the potential to lift sanctions on Russia, perhaps he is open to buying oil from Russia which would knock Canada’s oil sales to US.  Trump also has his eye on copper imports, suggesting all US industries should buy US made copper.  Tariffs on copper imports look likely.

In football, Chelsea reclaimed fourth spot in the premier league with a 4-0 win over Southampton.  Crystal Palace beat Aston Villa and Brighton beat Bournemouth who are starting to lose grip on those European places in the league.  Some big matches this evening, Spurs, desperate for another win host Man City, Arsenal travel to Notts Forest and Liverpool face Newcastle.  Meanwhile England’s cricketers are taking on Afghanistan in a must-win match, England are bowling first to avoid elimination in the tournament.   This won’t be as easy as you’d hope.

A pretty light calendar today, expect more dovish comments from BoEs Dhingra later, but attention must be on Trump, tariffs and Ukraine deals. 

Have a great day

-  14.00 Trump speaks

-  15.00 US new home sales

-  16.30 BoEs Dhingra speaks

-  17.00 Feds Bostic speaks

-  18.00 Feds Barkin speaks

US/Europe relations driven further apart despite Macron's best efforts

Good morning

A pretty quiet day in the world of currencies yesterday, for a while in the afternoon it looked as though the US dollar would make some gains, with GBPUSD and EURUSD dropping to around 1.2610 and 1.0450 respectively but the move was short-lived and by the London close GBPUSD was back up at 1.2640, EURUSD at 1.0475.  This morning GBP tested down at yesterdays lows, now just a few points higher at 1.2620 is a touch lower at 1.2620, while EURUSD is still holding around 1.0470, ignoring this mornings German GDP data.  As a result GBPEUR is a touch lower at 1.2060.  GBP weakness could be put down to comments from BoEs Dhingra who warned that gradual rate cuts will slow the economy, clearly wanting more cuts and sooner.  She is a known dove mind you. 

Trump spoke yesterday after his meeting with Macron, who told Trump he needs to be careful not to look weak in Putin’s eyes.  Macron seems to have done pretty well, Trump didn’t seem too upset at least.   I did see some news headlines suggesting Ukraine may actually make a deal with the US over its rare earth minerals, if that came with security assurances that would prevent Russia from invading again in the future.  But surely Russia will want a piece of those minerals as well, will they stop until they get some. 

There’s such a lot going on right now and I’m interested to see how this plays out but I do of course hope for an end to the invasion that has claimed so many lives and caused so much destruction.  But for Putin, if the war has done anything, it has driven a wedge between Europe and the US, a once powerful coalition that does seem to be crumbling before our eyes.  The latest UN security council communique did not even mention that Russia was to blame for the invasion, the US choosing to side with Russia and China on that point.   Perhaps it is all to get Putin to the peace table. 

In other news, Trump has suggested that tariffs on both Canada and Mexico could well be introduced next week.  You’ll remember both CAD and MXN weakened heavily on the original announcement of tariffs, which were then rescinded and the currencies returned to pre-announcement levels.  They are now trading at 1.4255 and 20.46 against the USD, having seen a high earlier this month of around 1.4900 and 21.29.  Surely worth a cheap upside option play just in case we see more of the same.  20 cad pips would buy the 6th march 1.4500 usdcad call. 

One reason I am not a fan of crypto is how easy it seems to be to lose vast sums of the virtual currencies in computer crime.  Now, hackers have stolen US$1.5bn worth of Ethereum from crypto firm Bybit, the largest theft by some margin.  Bybit claims to be solvent and that users would be reimbursed.  While crypto currency prices remain reasonably elevated, some crypto firms are seeing share prices fall sharply, such as Block Inc which traded down from Thursday’s close around $83 to a low today around $65. 

As companies and countries seek to harness quantum computing, surely it becomes easier to hack into crypto firms.  Microsoft recently unveiled their Majorana chip, a quantum chip that some think could transform computing.  OK, its early days for quantum computing and we are yet to really see it in mainstream operation but I have no doubt we’ll get there one day and when we do, surely doubts must be placed on all online security, including the likes of Bitcoin.

The top of the table clash in the Championship took place yesterday evening with Leeds (1st) taking on near neighbours Sheffield Utd (2nd).  Leeds went one goal down quite early on but found an equaliser with about twenty minutes to go.  They then scored two goals in the dying minutes to give Leeds the win.  They are now 5 points clear at the top with a terrific goal difference of +50.  Surely we’ll see them in the Premier League next season.  Mark will be happy. 

That’s all for now, have a great day

-  10.00 ECBs Nagel speaks

-  13.00 ECBs Schnabel speaks

-  14.00 US house price index

-  14.00 BoEs Pill speaks

-  15.00 US consumer confidence

-  16.45 Feds Barr speaks

-  21.15 Feds Logan speaks

-  00.30 AUS CPI

Concern over European relations with US amid Ukraine 'peace talks' and German elections

Good morning

Welcome back after what was a pretty decent weekend.  We felt the warmth of the sun on Saturday, something of a rare treat at this time of year.  Not quite as pleasant now, we have some pretty heavy rain, but as I’m tucked inside my office its less of a concern. 

Over the weekend we had the German elections which saw Merz’s CDU win with 28.6% of the vote, short of the 30% he had hoped and in need of finding a partner for a coalition which should be formed by Easter.  Outgoing Chancellor Scholz’s party, SDP, dropped to third place in the voting with just 16.4%.  Ahead of them for AfD on around 21%, but Merz has already publicly said he will not work with them. 

I do get the concern over parties like AfD but there is no doubting their growing popularity as western countries look at what they regard as unfairness and inequality over immigration.  I do question the use of the ‘far-right’ label.  What makes a party ‘far-right’?  Sometimes it gets used for anything that isn’t left-leaning, but really it seems to go towards anything that has immigration high on their agenda.  I’m not sure that is far right.  I could be wrong of course. 

Merz has already made waves, talking of the need for EU to distance itself from the US, saying Trump is largely indifferent to the fate of Europe and Merz’s goal is to strengthen Europe quickly.  This is a pretty big change of tone in EU/US relations and comes amid some pretty shocking comments from Trump over Ukraine and Zelensky last week which, according to Trump, was Ukraine’s fault.  Talk of further US/Russia discussions on Ukraine this week but notably Ukraine remain missing at the table.

Merz warns NATO is also at risk as a result of Trump’s recent comments.  Europe is on Ukraine’s side and US seems to favour Russia more, although I think this is partly just Trump trying to get a quick end to the invasion to make himself look good, and also as we have seen, for him to access Ukraine’s mineral deposits in return for the billions of dollars of aid already provided by US to Ukraine.  I don’t think peace, nor Ukraine’s minerals, will come as easily as Trump hopes, supporters of Trumps plan does see a deal that commits US to financing and security of Ukraine.  Meanwhile European leaders along with Canada’s Trudeau are in Ukraine on a full show of support on the three year anniversary of the Russian invasion. 

EUR opened higher after the German election result, EURUSD pushing up from 1.0460 to an overnight high around 1.0525, although has since slipped back to 1.0480.  EUR also made small gains against GBP, with GBPEUR trading down from 1.2080 to 1.2050.  The EUR support waned a little on comments from ECBs Villeroy who has said rates could be as low as 2% this summer althgouh ECBs Wunsch has warned against ECB making too many rate cuts without really thinking about it.

Elsewhere, USDJPY has held below 150.00 since Friday afternoon, now 149.30 as talk of further BoJ rate rises pushes Yen higher.  GBPJPY 188.65 as I type.

In sport over the weekend, Spurs managed a third league win in a row for the first time since Dec 2023, a worrying statistic.  Arsenal’s loss to West Hamm, and Liverpool’s win over Man City, has led many to say the title race is over and some bookies have even paid out bets on Liverpool’s title victory.  England beat Scotland in the six nations, although it must be said that England had to rely on the Scottish kicker who missed three conversions, any one of which would have given Scotland the win.

England were not so lucky in the cricket, where Australia chased down England decent 351 with 2.5 overs to spare, despite being just 136-4 at one stage.  It was the ninth highest run chase ever recorded.  England will need to up their game in the remaining matches against South Africa and Afghanistan if they have any hope of reaching the semi-finals.

Plenty of BoE officials speaking today.  GBP has been reasonably stable, GBPUSD did trade up to 1.2690 overnight but is back 1.2635, pretty much where it closed Friday.  German IFO today is overshadowed by the German election news, and EU inflation numbers are likely to have little impact.  Trumps’ speech this evening, following a meeting with Macron, could be the more important event on the calendar today.

-  09.00 German IFO

-  09.00 BoEs Lombardelli speaks

-  10.00 EU HICP

-  11.00 German Buba monthly report

-  11.15 BoEs Pill speaks

-  13.15 BoEs Ramsden speaks

-  18.00 BoEs Dhingra speaks

-  19.00 Trump speaks

-  07.00 German GDP