ECB expected to cut rates again
While the immediate inflationary hit from the trade war could prove less than feared, it will still likely hurt Eurozone growth
- The European Central Bank is set to lower its key interest rate by 25 basis points on Thursday to help cushion its economy
- The case has been bolstered by the surprising strength of the euro in the wake of the “Liberation Day” tariff announcements
- Policymakers had expected a weakening currency to push prices of imports higher
- ECB will want to keep their options open, so the language used to describe their stance after the move in the key rate is likely to be unchanged
- Two more quarter point cuts are expected for the rest of 2025
Japan bonds signal market dislocations
A rise in real yields is often regarded as a signal that growth is picking up, boosting also the appeal of the securities.
But the permutations are less positive in this instance, as the spike came on the back of a similar move in Treasury yields last week amid growing doubts about the viability of US government bonds as a haven asset
- The selloff in Japan’s inflation-linked notes has propelled their yields above zero for the first time in over four years
- The yield on 10-year inflation-indexed notes jumped to 0.10% on Tuesday, the highest since July 2020
- The jump in real yields appears reflective of market participants reducing risk given the persistent instability of the market
Most negative sentiment in 30 years
Investor sentiment regarding economic prospects is the most negative in three decades
- Fund managers are extremely gloomy, with 82% of respondents expecting the global economy to weaken. Consequently, a record number intend to reduce exposure to US equities, according to the poll
- Respondents are a net 36% underweight US stocks in April, down from 17% overweight in February, the biggest ever two-month drop
Semiconductor woes
After the headlines that the Trump administration has initiated trade probes into the semiconductor imports that could lead to new sectorial tariffs come further negative news on the industry
- The US government has barred Nvidia from selling its H20 chip in China in an escalation of Washington’s tech battle with Beijing – there are concerns that the chip could be used in or diverted to a supercomputer
- Nvidia warned that it will report 5.5 billion USD in write-downs during the quarter caused by excess inventories and commitments on the chip
- In Europe, ASML reported lower-than-expected orders in first quarter citing uncertainty from tariffs as main cause
- Company bookings came out at 3.94 billion Euro against 4.82 billion Euro expected
Disclaimer
The information, products, data, services and instruments contained or described in this publication are for information purposes only and constitute neither an advertisement or recommendation nor an offer or solicitation to buy or sell any product.
The financial products described in this publication are not suitable for all investors. The information contained in this publication does not represent any financial, legal, tax and/or other recommendations. Any investment or other decision should not be made solely on the basis of this document. Before making any investment decision, it is recommended that you seek a thorough examination of your situation and the advice of a qualified specialist.
Although the information contained in this document has been compiled by PKB on the basis of or with reference to sources, materials and systems believed to be reliable and accurate, PKB does not guarantee its currency, accuracy or completeness.
PKB accepts no liability, to the fullest extent permitted by applicable laws and/or regulations, for loss or damage of any kind arising directly or indirectly from the content, accuracy, completeness or otherwise of the content or any third party content referred to in this publication.
The analyses and forecasts contained in this publication are based on assumptions, estimates and hypothetical models which may prove to be incorrect and therefore lead to substantially different results.