Markets will be in thrall to the quite incredible moves we saw last week, which were primarily driven by the new European security and fiscal order. European assets, be they equities or the euro, continued to massively outperform the US, as bond yields in Europe soared. The world’s most traded currency pair, EUR/USD, rose over 4.4% last week, even outpacing the move seen in late 2022. The current theme, that centres around the huge shift in long-term fiscal policy, has trumped (pardon the pun) the US exceptionalism narrative which continues to be faded. Focus will be on US-Ukraine talks this week in Saudi Arabia and a hope that they go better than the recent Oval Office meeting.
Tariff fall-out and the impact of DOGE’s effective austerity measures might continue to weigh on the dollar. The US President did give Mexico and Canada another delay on the 25% tariffs until April 2. But steel and aluminium tariffs are due this week, with reciprocal tariffs on track for early April. Of course, we’ll be on the look out for any Trump headlines, with the noise adding to intraday volatility. The S&P 500 and the Nasdaq are both trading around their 200-day SMAs so at key support/resistance points.
Price action in the greenback appears to be mimicking the early stages of Trump’s first stint in the White House around late 2016/2017. We note USD fell roughly 10% in 2017. Of course, history tells us things rarely pan out the way we expect. Indeed, ECB President Lagarde spelt this out last week when cutting rates, as she used the word “uncertainty” no less than 17 times during her post-statement press conference.
It’s a much quieter week on the calendar, with very little top tier apart from the latest US inflation figures. This release probably won’t move markets too much, unless the high prior print is seen again which could spark fears of stagflation. Stagflation in the US is not something we thought we’d write about any time soon. Nor that we see there are parliamentary elections this Saturday in Greenland, so expect more Trump reaction to that. More seriously, money markets now see the Fed cutting rates three times this year, as it reacts to the softer US data and import-driven plunge in some predictors of first quarter GDP. Is that overdone after Fed Chair Powell’s ‘not in a rush to cut rates comments on Friday?