It’s likely to be another enthralling week in financial markets. We have a packed data calendar full of important economic data, like global PMIs figures, UK, Japan and Canada CPI numbers. On top of that, both the Antipodean central banks are expected to cut interest rates, though the similarities between the RBA and RBNZ are few. Of course, nothing happens in this world at the moment, without mentioning the “t-word” – Trump, tariffs (and threats) and focus this week will likely be whether there are Trump-Xi trade talks.
That said, the mood of markets appears to now be one of relative fatigue to any Trump announcements about tariffs. Last week, the POTUS emphasised that America would target countries with high VAT, a move that appeared to be aimed at the EU. Notably, Trump, who campaigned on a pledge to bring down consumer prices, acknowledged that prices could go up in the short term because of this policy. An April deadline was given, which enables both sides time to, as usual, negotiate a deal. The market reaction saw risk-on sentiment, resulting in lower US yields, a weaker dollar, and higher equities.
Going forward, the EU will remain in the Trump tariff crosshairs, with progress on a ceasefire in Ukraine now front and centre. Lower energy prices and broader investment in Europe is a huge deal, but the road towards a peace settlement, and price action too, will no doubt be bumpy. We will also be watching the considerable outperformance of European stocks this year, with the German election next weekend likely to get more focus. The German Dax stock index is currently up 13% year-to-date, in contrast to the relatively paltry 3.6% rise in the US benchmark S&P 500. A lower risk premium, improving consumer confidence and a ready-to-rate-cut ECB are all reasons cited for the big move in German equities. However, the overbought nature of the parabolic price action on multiple timeframes warns of a correction.