US 10-year yield heading lower
Treasuries rallied as traders boosted bets on Fed cuts as Trump’s tariff plans is impacting investors’ risk appetite
- 10-year US bond yield fell to 4.30% hitting lowest level since December
- Money markets are fully pricing in two full quarter point reduction from Fed for the whole of 2025 for the first time in four weeks – markets are growing confident that US economy is weakening with uncertainty over Trump administration policies weighing on business sentiment
- US PMI’s released last Friday showed activity expanding at the slowest pace since September 2023 with service sector (main driver of economy) contracting for the first time in two years
Guess who’s back? That’s right – inflation!
Last week, U.S. 5-10 year inflation expectations reached a final reading of 3.5%, the highest level since April 1995. In contrast, one-year inflation expectations remained stable at 4.3%.
Naturally, markets have taken note of these figures with some trepidation and will focus on this week’s related developments:
- Friday’s US core PCE
- Preliminary Italian, German and French CPI figures for February on Friday
- Spanish inflation data on Thursday
- Tokyo CPI data and possible comments from the Bank of Japan
- G20 Finance and Central Bank Ministerial Meeting on February 26-27
Trump’s Tariffs and Tech Restrictions
President Donald Trump announced on Monday that tariffs on Canada and Mexico will take effect in March, ending a temporary suspension that lasted for a month. These import duties could potentially slow economic growth and contribute to rising inflation
- Trump’s administration is intensifying efforts to curb China’s technological progress by tightening restrictions on semiconductors and urging allies to impose stricter measures on China’s chip sector
- Discussions have taken place with officials from Japan and the Netherlands to limit the servicing of semiconductor equipment in China. Additionally, the administration is considering sanctions and further restrictions against certain Chinese companies
- Emerging-market stocks and currencies weakened due to concerns over Trump’s policies on tariffs and computer chips, which may hurt their economic growth
German election results
The CDU/CSU won the election (28.52%) and Friedrich Merz will be Germany’s new chancellor:
- Merz has ruled out a coalition with the far-right AfD (20.8%), leaving the SPD as the only real option
- The SPD is aware of this and will make high demands, which will limit the CDU’s margin
- Germany has a chance of greater political stability in the future with a smaller coalition
- Merz’s Union stands for economic competence. Its priorities will be to stimulate growth, strengthen defence, tackle immigration and take on more responsibility in Europe
- The AfD and the Left Party have won a blocking minority. A reform of the debt relief is therefore not possible without the agreement of one of them
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