Trump pauses US military aid to Ukraine
President Trump announced on Monday a “pause” in assistance to Ukraine as he seeks to force Ukrainian President Zelensky to engage in negotiations to end the war with Russia
- The order will remain in effect until Ukraine has demonstrated a commitment to peace negotiations with Russia, which appear still distant
- The move comes just days after a disastrous Oval Office meeting
- Trump administration and Ukrainian officials had been expected to sign off on a deal that would give the United States access to Ukraine’s critical minerals in exchange for the aid that it has sent Kiev since the start of the war
- Vance further criticized Europe, citing disservice done to Ukraine by not pressuring Zelensky
EU defense stocks surge, interest rates rise
European defense stocks have risen sharply as investors expect higher military expenditures
The European Commission has announced the ReArm Europe Plan, emphasizing the urgency of strengthening Europe’s defence capabilities. Germany will amend its constitution to exempt defense and security outlays from fiscal spending limits, causing an immediate spike in government interest rates
US GDP Forecast drops, inflation in line
The Atlanta FED GDP has shifted from a 3.9% increase to a 2.8% decline for the first quarter of 2025, raising concerns in financial markets
- Economic uncertainty, driven by trade policy chaos and public sector job cuts, is negatively impacting business investments and consumer confidence
- Some temporary factors, such as a surge in imports to avoid tariffs and unusually cold weather, may have exaggerated the slowdown
- Meanwhile, the core PCE deflator rose by 0.3% in January, bringing inflation down to 2.6%, the lowest since March 2021, with a further decrease expected in February
- Despite potential tariffs, core PCE inflation is expected to stay between 2.5% and 2.7% for 2025, and most FOMC members are likely to continue predicting two 25bp rate cuts for the year
ECB: Eyes set on a new cut on Thursday
The European Central Bank is expected to lower rates this week by 25bp – this would be the sixth cut since June 2024
- Market is pricing a 99.3% chance of this happening with analysts predicting back-to-back cuts until deposit rate reaches 2.00% (currently at 2.75%) – some investors are starting to think that a pause in April could be possible
- Nevertheless views within the Governing Council are beginning to diverge as some members advocate a more cautious approach
- In the meanwhile, Eurozone inflation eased to 2.4% in February (from 2.5% in January) , boosting confidence in ECB that 2% target is approaching
- Service inflation also dipped to 3.7% marking first major move down from 4.0% since April 2024
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