Another cat thrown among the pigeons
Markets are reacting to Donald Trump’s weekend threat to impose a 10% tariff on eight NATO allies (six EU countries and two non-EU countries) involved in the deployment of military personnel to Greenland at the end of last week, which he said poses a risk to ‘global peace and security’. However, as per the usual Trump playbook, the tariffs won’t kick in for a couple of weeks (February 1st), allowing room for negotiations in the meantime. The EU has responded by saying that….In FX, the euro…
Not surprisingly, Euro area bond yields are lower this morning following the weekend’s developments, extending last week’s decline, while US and UK yields have also headed south, reversing last week’s increase. European stocks are on the back foot, down around x%, while US indices are set to open lower later today based on the futures market.
US government bond yields bond yields backed up further last week with 2-and 10-year yields both increasing by around 6bps. Equivalent UK yields rose by about 3bps, while German yields fell by circa 3-4bps. In equity markets, US stocks ended slightly lower on the week overall, while European outperformed again, chalking up gains of around half a percent.
Fed Vice-Chair Ferguson says the 75bps reduction in policy rate over the final months of last year has brought it “into a range consistent with the neutral rate – a rate that neither stimulates nor restricts economic activity”. Hence he believes “the current (monetary) policy stance leaves us well positioned to determine the extent and timing of additional adjustments to our policy rate” depending on how the risks to the Fed’s employment/ inflation mandate evolve.
Looking to the week ahead, obviously the focus for markets will be on the fall-out from developments over the weekend. In terms of economic, flash PMIs for January are due in the main economies on Friday, while US PCE inflation – the Fed’s target measure – for November is scheduled for Thursday. There are a number of important releases due in the UK, including the latest labour market report (for the September-November period) tomorrow, CPI inflation (December) on Wednesday, and retail sales (also December) on Friday. Today’s sees the release of a final CPI inflation reading for December in the Euro area.