Trump’s tariff retreat
There’s some relief in markets as Donald Trump backs down from his threat to impose tariffs on 1st February after he said he had agreed ‘a framework for a future deal with respect to Greenland’ with NATO Secretary General Mark Rutte, though there are few details available regarding what this entails (should we be surprised?). US stocks rose and bond yields fell heading into the New York close, while the dollar chalked up (very) modest gains. EURUSD is hovering just below $1.17 this morning, still around a cent higher than at last Friday’s close (before Trump’s tariff threat), while GBPUSD is trading at around $1.3420, not much changed really from yesterday morning’s levels. EURGBP continues to trade just north of £0.87. Some attention might return to economic data today with PCE inflation – the Fed’s target inflation measure – for November due in the US.
US government bond yields closed 5-6bps lower in the 10- and 30-year area of the curve, partly reversing some of the jump in yields seen earlier in the week. UK and German yields ended flat to marginally higher yesterday, but they are both nudging lower at the open this morning, helped also by a further decline in Japanese bond yields overnight (10- and 30-year yields are now down around 10bps and 20bps from Tuesday’s highs).
The main US equity indices closed just over 1% higher following Trump’s tariff retreat, while Asian markets were solidly in the black overnight (Japan’s Nikkei index was among the best performers with gains of almost 2%). Not surprisingly then, European stocks have opened higher this morning with the Stoxx Europe 600 up around 1% at the start of play.
Regarding today’s PCE inflation data in the US, the consensus expects both headline and core inflation to come in at 2.8% in November, both unchanged from September (the latest data available owing to the recent government shutdown). Other US data scheduled include the regular weekly jobless claims (covering last week) and a final estimate of GDP growth in Q3 last year. It’s quiet data-wise elsewhere with Euro area consumer confidence the only other release of note, while the ECB publishes the minutes of its December monetary policy meeting.