Markets
Some of the largest intraday market moves were to be found in commodities. For starters, oil. The black gold slides from prices just south of $67 yesterday to $63.7 per barrel today (4.5%), snapping a five day winning streak. Losses followed on reports that president Trump received assurances that the killing of Iranian protesters is stopping. Markets concluded military action by the US in Iran, thereby potentially disrupting oil flows, is now less likely. It’s highly uncertain whether such military escalation is indeed off the table with Trump prior to the B2-bomber attacks last summer having created a smokescreen too. Gold loses some modest ground (-0.7%) to sub $4600/ounce, perhaps linked to this geopolitical de-escalation. Silver prices drop back below $90 (-4.7%), again on Trump-news that the president doesn’t plan to impose tariffs on critical metals, including silver but also platinum (-3%). Instead the president floated the idea of price floors. Both gold & silver (and platinum for that matter) remain near historical highs though. We’re seeing other metals catching a breather as well after rallying at breakneck pace for reasons varying from a general preference for hard assets that are limited in supply (dollar debasement trade) to high demand linked to AI and the electrification. Copper (-2.5%), nickel (-4%) or zinc (-3% intraday move) all slip.
The bull flattening in FI yesterday made way for some bear flattening today. Core bond yields rise 0.1-2.3 bps in Germany and 0.5-4 bps in the US. Treasuries started underperforming (at the front) following a sub 200k jobless claims print, which was the second lowest in two years. It strengthens last week’s payrolls message that the labour market is not dramatically deteriorating, or in any case not as much that it requires further rate cuts in the short run (ie next week). Other second-tier US data was strong too with both the Empire Manufacturing and Philly Fed Business Outlook indicators rebounding much more than expected (to 7.7 and 12.6 respectively from -3.9 and -10.2). Germany meanwhile posted its first annual GDP growth since 2022 as the effects of its spending spree begin to unfold. Private & government consumption rose by 1.4% and 1.5% respectively. UK yields added 2.4-3.7 bps across the curve with industrial production, services activity and the monthly GDP indicator are topping estimates. It failed to help sterling though. EUR/GBP appreciates to 0.867. The US dollar strengthens against most G10 peers. EUR/USD drops to 1.1607, the lowest in a month. DXY is nearing a first resistance around 99.51 (23.6% recovery on the 2025 decline). JPY is unimpressed by a Bloomberg report that’s citing people familiar with the matter that the BoJ pays increasing attention to the weak yen’s potential impact on inflation. While the sources don’t expect a rate hike this month, it could impact policy going forward. USD/JPY is filling bids around 158.77. Strong earnings from Taiwan’s TSMC rekindles AI optimism, leading the Nasdaq to almost fully recover yesterday’s 1% loss at the open today.
News & Views
The Peoples Bank of China today announced that it will cut interest rate on its structural monetary policy tools by 25 bps starting on Monday. The rate on one year loans will be reduced to 1.25%. The move eases financing conditions for specific sectors in the economy rather than a broad monetary easing. The bank also announced that it will expand a relending programme for tech innovation and provide additional financing facilities for the agricultural sector and small private firms. During a briefing, Deputy governor Zou Lan indicated that there is room for the PBOC to cut its policy rate and the reserve requirement ratio (RRR) later this year. Maybe considerations on financial stability (including on stock market valuations) were a reason for the bank not the ease policy on a broader scale. On the yuan, the deputy governor indicated that yuan is currently evaluated as being stable an is no constraint for interest rate cuts. The recent decline in the USD/CNY rate was seen as driven by USD weakness. After some intraday volatility, the yuan again trades near the strongest levels since May 2023 (6.97 area).
German IFO sentiment on the construction sector turned more gloomy at the end of 2025. The index declined from -19.3 to -20.6. Companies assessed their current situation and expectations for the coming months as worse. Ifo commented that “Residential construction can’t quite make any headway”. The share of residential construction companies reporting too few orders rose further to 47.7%. Companies also reported higher cancelations (11% to 11.5%.). The gloomy outcome comes even as residential building permits have been rising recently. However it takes time for this to translate into actual orders.
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