Stocks slide ahead of ‘Liberation Day’
Bonds rallied strongly on Friday as equity markets sold off sharply ahead of Trump’s reciprocal tariffs announcement this week (with the rout in stocks continuing in Asian trading overnight). In this context, it was relatively calm in FX with the main currency pairs not much changed on Friday, nor indeed on the week as a whole, though the euro gained a little ground against both the dollar and sterling. The single currency is trading at around $1.0840 and £0.8360 respectively this morning, while the pound has edged up above $1.2950 against the dollar. While ‘Liberation Day’ on Wednesday will be the main focus for markets this week, there’s some important economic data due too including Euro area inflation (Tuesday) and the US employment report (Friday).
US Treasuries led the rally in bonds on Friday with 10-year yields declining by around 10bps on the day, while equivalent UK and German yields fell by 8bps and 5bps respectively. Yields are lower again this morning as equity markets remain on the back foot. The Nikkei in Japan was down almost 4% overnight, while European stocks are off 1% at the start of play today after shedding 1% on Friday. US stocks look set to open lower later today too, after sharp losses on Friday led by a near 3% decline in the Nasdaq.
Friday’s inflation data in the US were a touch firmer than expected. Headline and core PCE prices rose by 0.3% and 0.4% respectively in February, leaving the annual rate of headline inflation unchanged at 2.5% but pushing the core rate up to 2.8% (the latter has been stuck in a range of 2.6% to 2.9% since April last year). The data will reinforce the Fed’s view, which was reiterated by a number of members last week, that it is appropriate to keep interest rates on hold for now.
Economic confidence in the Euro area remains relatively subdued according to the European Commission’s latest Economic Sentiment Indicator. It fell back in March, led by a notable decline in confidence in the services sector, and remains consistent with a continuation of just modest economic growth in the zone.
Looking to the day ahead, it is relatively quiet on the data front with mortgage approvals & lending for February in the UK. As mentioned, Euro area inflation for March is due tomorrow, as is the ISM index of manufacturing in the US, while later in the week, the ISM services index is published on Thursday ahead of the key employment (payrolls) report on Friday.