Intuitively, a deal with Russia would help euro rates higher, but falling gas futures are already pushing down the curve through lower inflation expectations. Tensions with Russia are likely to stay, which means risk sentiment should remain fragile
UK inflation has peaked, but the latest data is a tad hawkish for the Bank of England. Food inflation was strong, which is red meat for the hawks. Services inflation rose, once volatile items are stripped out. However, we still expect the Bank to cut rates in December
Inflation in Hungary showed signs of stagnation in October, yet this is still not a success story. With price pressures still above the central bank’s target, it is highly unlikely that we will see any interest rate cuts until autumn next year
EUR/USD has nudged through resistance at 1.1650 in quiet markets. The softer dollar has been the driver, although we wonder whether some compromise on the French budget is helping too.
A revision of the eurozone's long-term growth outlook would have a significant upward impact on euro swap rates. This is unlikely to happen overnight, but in our view should build gradually over time. In the US, it's a steady state along the coupon curve. But there’s lots going on in the pipes of the money markets as repo tightness persists
We doubt markets expect the French prime minister to find a solution by Macron's imposed deadline. With little else to work with, supply pressures might be leading on Wednesday. Overall, euro rates seem well-positioned for now, but over the long term, we see the 10Y swap rate settling at a higher level
Unprocessed food was mainly responsible for Czech headline inflation ticking lower. Meanwhile, pricing in services remains robust, and may affect inflation expectations. One softer-than-expected inflation print is unlikely to alter the central bank's hawkish stance. We'd need to see more relaxed core inflation and disinflation in services first
MKT INTEL VIEWS: NVDA delivered a solid print (rev +56%y/y) but the stock is down as this was the smallest % increase in 2 years and results were a bit light of expectations (see our spec sales take here). The stock market reaction across Asia Tech seems to suggest the AI trade remains intact, although reports that China chipmakers are aiming to triple AI chip output next year also helped (within SHCOMP, Tech is the only sector in the green this morning as 85% of stocks are lower).
NVDA was a touch disappointing, mostly on China, while other components were largely in line. Japan AI proxies are trading higher (GSXAJPAI +1.4%), though NVDA price action will come down to positioning setup.
The Asian session saw a shaky start as US President Donald Trump posted on his Truth Social account that Federal Reserve Governor Lisa Cook will be removed effective immediately.
The immediate reaction saw a gauge of the US dollar retreat as much as 0.3% and gold rose as much as 0.6% to around $3385/oz.
Although real wage growth was strong in June, it has not yet returned to the double-digit levels seen in previous years. We expect negative perceptions of household finances to persist. Weak consumer confidence continues to be a problem for the economy
French politics is injecting uncertainty into eurozone bond markets, but the spread widening remains more confined to French bonds for now. Long-end yields globally have felt supply and fiscal pressures, yet the challenge to central bank independence puts a unique focus on the US curve
This week could have started calmly, with investors digesting Friday's policy shift at the Federal Reserve (Fed), consolidating recent gains and repositioning ahead of the all-important Nvidia earnings due Wednesday. But instead, Donald Trump chose to keep markets on edge by announcing the dismissal of Fed Governor Lisa Cook over alleged mortgage fraud.
South Korea’s latest fiscal stimulus contributed to improved consumer sentiment and greater growth momentum. But these effects may prove temporary. Even so, the Bank of Korea will stand pat later this week, as it focuses more on housing prices.
The UK CPI was weaker than expected in February at 2.8%yr compared to 3.0%yr in January. Core inflation edged down from 3.7%yr to 3.5%yr, but services inflation held up at 5.0%yr. However, decrease in both was mainly driven by weaker core goods inflation, while services inflation, which the BoE officials follow closely, was unchanged at 5%yr.
After the very fragile post-FOMC rebound, Friday's session saw American indices (notably techs) extend their recovery, aided by more measured remarks from Donald Trump, who said “there’ll be flexibility” on reciprocal tariffs.
• USD firmer as markets trade cautiously into Fed decision.
• CAD slips back from probe through upper 1.42s.
• EUR drifts lower after another failure around 1.0950 yesterday.
• GBP tracks peers, short-term price patterns may be tilting negative.
• JPY drops after BoJ holds policy rate at 0.50%, as expected.
• AUD, NZD lower in line with peers; Aus jobs, NZ GDP data due tonight.
• MXN softer on the day but holds gains back through 20.
Friday's session was marked by the announcement that an agreement has been reached with the Greens in Germany, notably on the €500bn infrastructure fund, of which €100bn will be dedicated to the energy transition, but also on exemptions to the debt brake.
It has been a quiet start to the week for the major FX rates ahead of a busy schedule of G10 central bank meetings this week including the BoJ and Fed on Wednesday followed closely by the SNB, Riksbank and BoE on Thursday. Ahead of those policy updates the US dollar is continuing to consolidate at weaker levels against other major currencies with the dollar index trading just below the 104.00-level.
At the same time, the US dollar is being negatively affected, especially since its nominal effective exchange rate suggests the currency is overvalued. The US dollar is penalised by concerns over US growth, with an increased risk of stagflation taking hold in the United States.
American exceptionalism, the main market theme since Trump's election in November, is clearly in a bad way, stoking the idea that American soft power is on the wane. Trump is certainly not solely to blame for this gradual deterioration. Rather, it is the promise of a rebound that seems to be vanishing.
