Dollar regains ground
There was a positive tone to markets yesterday as trading got back into full swing following the Easter holiday, helped by comments by the US Treasury Secretary who said the ‘trade war’ with China needed to “de-escalate”. Donald Trump also chipped in late in the day, saying he had “no intention” of firing Fed Chair Powell (though it’s not clear he can in any case) while again calling for the central bank to lower interest rates. US stocks rallied strongly, US bond yields eased back from Monday’s highs, while the dollar recovered substantial ground. The euro is trading back at $1.14 and sterling has slipped to around $1.33, both well off Monday’s best levels, while EURGBP is a touch softer this morning at around £0.8550.
US equities closed about 2.5% higher on the day, reversing a large portion of Monday’s fall, and Asian stocks have chalked up solid gains overnight, while European indices have opened well in positive territory (+2%) this morning having added around half a percent yesterday. In bond markets, US 10- and 30-year yields have fallen back by around 5bps and 10bps respectively from Monday’s close.
It is no surprise at all that the IMF in its latest projections has lowered its forecasts for the global economy, noting than an “abrupt increase in tariffs (and) a surge in policy uncertainty will slow growth significantly.” It expects world GDP growth of 2.8% this year and 3% next year, a cumulative downgrade of around 0.8 percentage points relative to its January 2025 forecasts but “still well above recession levels”. For the US, the IMF says tariffs represent a supply shock that will reduce growth and increase price pressures “temporarily”. It has revised down its forecast for growth this year by almost 1 percentage points to 1.8%, and raised its forecast for CPI inflation from 2% to 3%. For US trading partners, tariffs act mostly as “a negative external demand shock” that will weaken growth, including in the Euro area economy which the IMF sees expanding by 0.8% this year, revised down from around 1% previously.
Looing to the day ahead, economic data releases include the flash PMIs for April in the main economies; construction output in the Euro area; and new home sales in the US. The Fed publishes its latest Beige Book, a summary of economic and business conditions across the US.