Dollar a little firmer
More Trump tariff threats – this time a 200% tariff on alcohol imports from the EU – as well as fears of an imminent US government shutdown and softer than forecast US producer prices data all contributed to a renewed decline in equity markets and lower bond yields yesterday, while the dollar advanced albeit its gains were very modest. The euro and sterling are trading at around $1.0850 and $1.2940 against the US currency respectively this morning, down marginally from yesterday morning’s levels of $1.0880 and $1.2960, while EURGBP continues to hover just below the £0.84 level. This morning’s GDP data in the UK were weaker than expected, though this has had little impact on the pound.
US equity markets reversed all of Wednesday’s gains with the S&P 500 shedding almost 1.5% (now down 10% from its record high just over three weeks ago), while European stocks were off around 0.5%. The latter have opened flat this morning notwithstanding sold gains in Asian markets overnight. In bond markets, yields were generally lower with 2- and 10-year yields down around 3-6bps on the day.
The UK economy contracted slightly in January according to this morning’s release. GDP fell by 0.1%, following an increase of 0.4% in December, with output declines in industry and construction offsetting an increase in services output. GDP over the three months to January was still up 0.2% on the three months to October, and grew by 1.2% from the same three months a year ago.
Industrial production in the Euro area rose by more than expected at the start of the year, increasing by 0.8% in January following a downward revised fall of 0.4% in December. Output was flat on a year-on-year basis, an improvement from a 1.5% decline in the final quarter of 2024. In the US, meanwhile, February’s producer prices data were softer than expected, with the annual rate of output price inflation decelerating to 3.2% last month from 3.7% in January.
Today’s economic data include the University of Michigan’s “flash” readings for consumer confidence and inflation expectations in March. The February data showing declining confidence and rising inflation expectations – both tariff-related – caused a stir in markets and contributed to the start of the sell-off in US stocks. More of the same in today’s release is likely to cause markets further angst.