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
The risk mood has darkened a little this week, with some sizeable corrections emerging in some equity markets. There has not been one catalyst per se, but lofty valuations must be leading to some profit-taking in uncertain conditions. For today, it's all about the US ADP jobs release and what it means for the December Fed meeting. Expect FX to stay defensive
Global risk assets are bid on the view that this week's Trump-Xi meeting will be a positive one. A 25bp Fed cut on Wednesday should also help the tone, but that is very much priced in. With the People's Bank of China continuing to fix USD/CNY lower, we favour a mild downside bias to the dollar at the start of the week
Risk sentiment remains resilient and largely unaffected by factors such as French politics. While this should support EUR rates grinding higher and spreads – outside of France – still tighter, plenty of risks are looming. US rates are another directional driver, and today US data is in focus ahead of Wednesday's Fed decision
Investors are nervously waiting on the announcement of US President Donald Trump’s tariffs. With reports that deliberations on the tariffs are still ongoing, even with hours left to their unveiling, as well as speculation about the form they will take, investors remain uncertain.
It has been a quieter trading session overnight after the risk-off start to the week. The Nikkei 225 index is unchanged after yesterday’s sharp 4.1% sell-off. Similarly, the major foreign exchange rates have been relatively stable overnight ahead of the release tomorrow of President Trump’s plans for “reciprocal tariffs”.
Sentiment was given a lift in Asia by newswire reports that US President Donald Trump’s reciprocal tariffs may be of narrower scope than envisaged by investors. Trump’s National Economic Council director, Kevin Hassett, said markets are overestimating the scope of the tariffs.
“When the path is uncertain you go a little bit slower” – Chair Powell. The expectation is for the Fed to leave their policy rates unchanged at 4.25-4.50%. To us, uncertainty around the macro environment and politics will likely equate to little changes to the Fed’s forward guidance. Powell will likely want to keep all the options open.
