Markets
There were no important data in the US and in EMU today. This allowed investors to make up their mind on recent and upcoming events. In a weekly perspective both US and European yields confirmed a tentative bottoming out pattern. US yields compared to last Friday’s close rose about 3.5 bps (2-y) to 6.0 bps (10-y). German yields in a similar way added between 1.5 bps (2-y) and 5.0 bps (30-y). Initially, in the run-up to Wednesday’s Fed meeting, markets mostly focused on the what would be needed for central banks to move to a more stimulative stance. However, the Fed’s assessment basically went the other way. Powell and Co took notice of the high level of uncertainty. This elevated uncertainty combined with for now still decent hard data caused the Fed to confirm a reactive rather than a pre-emptive approach to further easing. This assessment was basically also joined by other central banks as they left rates unchanged (Riksbank, Norges Bank) or as they moved to cautious/hawkishly tilted rate cuts (BoE, CNB). For now, the focus/narrative on European interest rate markets is still rather on the potential deflationary impact of tariffs on the EMU economy (illustrated by comments for the likes of ECB Rehn and Simkus today). However, given current market pricing of a trough in ECB depot rate <1.75%, maybe rate talk in Europe at some point also might move to a more balanced approach as appeared with the likes of the BoE and the Fed this week. Aside for CB assessments, the focus since yesterday turned to potential progress in trade talks between the US and some of its trading partners after reaching a first (framework) deal with the UK. Markets this morning apparently hoped that the US at least would also try to capture some short-term wins in a first round of trade talks with China scheduled for this weekend in Switzerland. Too stretched hopes on this, if any, were tempered as president Trump today aired that an 80% tariff on China seems right. Even so, it leaves the idea/hope on some de-escalation intact. Balanced comments from German Chancellor Merz after a call with present Trump might be interpreted in a similar way. Talks will be difficult, but they are at least on speaking terms. EMU equities still trade with a 0.6% gain. German DAX even touched a new all-time record intraday. US indices also opened in green (S&P 500 +0.45%). In FX markets, the dollar this week similarly showed some further signs of bottoming. The trade war & the subsequent ‘Sell-America trade’ weighed heavily on the US currency last month. Signs of some de-escalation and the Fed not in a hurry to withdraw interest rate support bought the dollar some time. However, for now any USD gains develop at process/pace of two steps forward and one step back. Today was again a small step backward (DXY 100.3 from 100.65, EUR/USD 1.125 from 1.123). EUR/USD this week tested the 1.1235 support area (23% retracement YTD low/YTD top). For now, no clear break occurred yet (1.126).
News & Views
Canadian employment grew by 7.4k jobs in April, a little more than the 5k expected and offsetting some of the 32.6k jobs that were lost during March. Details showed full-time employment (+31.5k) compensated for a decline in part time jobs (-24.2k). The small uptick was carried by the public administration, coinciding with the hiring of temporary workers for activities related to the recent federal election. Other segments adding to the number were finance, insurance, real estate & rental while manufacturing and wholesale and retail trade shed jobs. The employment rate eased to 60.8%, matching a recent low recorded in October last year. The unemployment rate rose 0.2 ppts to 6.9%, returning to the November 2024 level, which was the highest since January 2017 excluding 2020-2021 pandemic years. The participation rate, however, picked up as well, to 65.3%. The Canadian Loonie barely budged on the release with USD/CAD hovering just north of 1.39. CAD levels are still among the strongest in seven months.
The Swedish government cut its growth forecasts for this year and the next to 1.8% and 2.3% respectively (from 2.1% and 2.8%), its finance minister Svantesson announced today, referring to global trade frictions darkening the picture and creating uncertainty. Risks remain tilted to the downside, she added, but also suggested fiscal policy could weigh in if needed. Sweden’s low debt level (around a third of GDP) allows for a budgetary response potentially even before the autumn. The forecast cut came after the central bank kept the policy rate steady yesterday while keeping the door ajar for more easing later this year. The Swedish crown trades a tad stronger at EUR/SEK 10.90.
