Latest news with #VasileiosGkionakis
Zawya
a day ago
- Business
- Zawya
Shares rise on China-US trade hopes, US dollar drops
PARIS - European stock indexes opened on higher on Friday, helped by signs of progress in U.S.-China trade talks, while the dollar slipped to its lowest in more than three years. Global stock markets have rallied to record highs this week, as traders took confidence from a ceasefire between Iran and Israel and markets stepped up bets for U.S. rate cuts. A trade agreement between the U.S. and China on Thursday on how to expedite rare earth shipments to the U.S. was also seen by markets as a positive sign, amid efforts to end the tariff war between the world's two biggest economies. European shares rose in early trading, after Asian shares hit their highest in more than three years in early trading, tracking the Wall Street rally. At 0852 GMT, the pan-European STOXX 600 was up 0.9% on the day, set for a 1.1% weekly gain. London's FTSE 100 was up 0.5% and Germany's DAX was up 0.8%. The MSCI World Equity Index was up 0.2% on the day at set for a weekly gain of 2.9%. The S&P 500 index is up just 4.4% this year overall, following a volatile first half of the year, dominated by U.S. President Donald Trump's "Liberation Day" tariff announcement on April 2, which sent stocks plunging. 'What we are having right now is potentially some optimism about some trade deals," said Vasileios Gkionakis, senior economist and strategist and Aviva Investors. "We have quite come from quite low levels in the aftermath of the Liberation Day in April. To a certain extent we have also had some mini-selloff on the back of the events in the Middle East, and in that sense we're rebounding." 'I think it's very early days, but I think there is a sense in the market that we are getting a bit fatigued with the theme of trade, and trade wars and trade deals, and would like to move past that," he added. Trump has set July 9 as the deadline for the European Union and other countries to reach a deal to reduce tariffs. DOLLAR DROP The U.S. dollar's decline continued, with the dollar index down 0.2% on the day at 97.183, its lowest in more than three years. The euro was at $1.1713, getting a lift after data showed French consumer prices rose more than expected in June. Markets are focused on U.S. monetary policy, as traders weigh up the possibility of Trump announcing a new, more dovish, chair of the Federal Reserve. Traders have stepped up their bets on U.S. rate cuts, and are now pricing in 64 basis points (bps) of easing this year versus 46 bps expected on Friday. The dollar is having its worst start to a year since the era of free-floating currencies began in the early 1970s. 'I don't think it's just the repricing of the Fed, I think there is a broader issue here of some tarnishing of U.S. exceptionalism,' Aviva Investors' Gkionakis said. Core PCE price data, the U.S. central bank's preferred measure of inflation, is due later in the session. European bond yields were mostly steady, with the benchmark 10-year German bond little changed at 2.567%. In commodities, oil prices were set for their biggest weekly decline since March 2023, as prices cooled back down after spiking briefly above $80 on news of the Israel-Iran conflict. Brent crude futures were trading at $68.35 a barrel, and U.S. West Texas Intermediate crude was at $65.24 a barrel . (Reporting by Elizabeth Howcroft in Paris; Editing by Kim Coghill)
Reuters
05-06-2025
- Business
- Reuters
For markets, end to ECB rate cuts just got closer
LONDON, June 5 (Reuters) - Traders are increasingly confident the European Central Bank will pause its run of interest rate cuts now that the central bank sees itself as well-positioned to deal with global economic uncertainty fuelled by U.S. tariff policy. Following Thursday's quarter-point cut in rates to 2%, ECB chief Christine Lagarde said the central bank was in a "good place" and was getting to the end of the monetary policy cycle. That lit a fuse under markets: The euro rose to six-week highs against the dollar and rate-sensitive short-dated euro zone government bond yields jumped as investors trimmed their rate cut bets. Money markets now price in a roughly 20% chance of a July cut compared with almost 30% just before Lagarde started speaking, with market attention initially falling on downward revisions to the ECB's latest inflation forecasts. While traders still anticipate one more cut this year given U.S. tariff uncertainty, the bigger picture is that the ECB's most aggressive easing cycle since the 2008/2009 global financial crisis was nearing an end, analysts said. "The phrase that turned markets was that the ECB is in a good place to navigate the uncertainties," said Aviva Investors senior economist Vasileios Gkionakis. "Absent a major shock on tariffs or an external shock, the most likely outcome is that the ECB is done." The euro rose more than 0.5% to $1.1481 , while two-year German government bond yields rose 8 basis points to around 1.88% in their biggest one-day jump in more than three weeks . "The strength of the euro is coming from the ECB's surprisingly hawkish message that they are approaching the end of the cutting cycle with today's rate cut," said Commerzbank currency strategist Michael Pfister. Becky Qin, multi-asset portfolio manager at Fidelity International, said she took a positive view on the euro given expectations for European investors to bring money back home from the United States. The euro's trade-weighted exchange rate is up almost 4% so far this year while oil prices are down 13% , putting downward pressure on inflation. Data on Tuesday showed inflation slowed to 1.9% in May from 2.2% a month earlier. A cut in the ECB's inflation projections initially caught market attention, but that was quickly overshadowed by Lagarde's comments. "The language was tilted to a pause being the base case," said Gareth Hill, portfolio manager at Royal London Asset Management. "The objective for this meeting was to get the market prepared for rates staying near where they are right now in case something left-field comes." Inflation could dip in the short term - possibly even below the ECB's target - but increased government spending, including German fiscal stimulus and higher trade barriers, may add to price pressures later. Lagarde said policymakers were "virtually unanimous" on the rate cut. "Despite the downward revision on growth and inflation since the last forecast, given the uncertainty about trade negotiations for the ECB to be data-dependent is the right assessment," Fidelity's Qin said. "'Wait-and-see or pause' is probably the fair assessment for the next meeting." Europe's broad stock index trimmed its falls following the ECB decision (.STOXX), opens new tab. Banking stocks rallied and their outperformance was another sign that investors were sensing an end to further rate reductions (.SX7P), opens new tab. Analysts said that U.S. tariff policy remained the biggest challenge to the ECB outlook. U.S. President Donald Trump last month backed away from his threat to impose 50% tariffs on imports from the European Union, restoring a July 9 deadline to allow for talks between Washington and the 27-nation bloc to produce a deal. "It's 3-4 months since Trump's inauguration and the world has changed and turned upside down, so forecasting with certainty what will happen in the next few months would be challenging," said RLAM's Hill. The ECB expects the economy to grow 0.9% this year and trimmed 2026 forecasts to 1.1%. Aviva's Gkionakis noted the euro zone economy was holding up better than anticipated at the start of the year, with the composite PMI -- a closely watched gauge of business activity -- holding around the 50 mark that divides contraction from expansion. "My view is that the ECB should stay at 2%," he added.
Zawya
07-03-2025
- Business
- Zawya
For markets, German fiscal splurge blurs ECB outlook
LONDON - A tectonic shift in German fiscal policy has compounded uncertainty for traders trying to bet on how fast the European Central Bank will cut rates for the rest of the year, with a change to the bank's guidance on Thursday reinforcing that. The ECB cut rates by 25 basis points to 2.50% in its sixth move since last June. But it said that monetary policy was becoming "meaningfully less restrictive," rather than the "restrictive" used before. That supported traders, who had already reduced bets on ECB rate cuts after a deal from Germany's next coalition partners on Tuesday to create a 500 billion euro ($541.40 billion) infrastructure fund and overhaul borrowing restrictions, partly to boost defence spending. "We could have potentially one more cut, a maximum of two," said Aviva Investors senior economist Vasileios Gkionakis, noting the ECB's change in language was a win for the policy hawks and meant to signal that an end to rate cuts is coming. Following the ECB's meeting, traders further curbed their bets on an April rate cut, now seeing less than a 50% chance of a quarter point move, down from over 60% last week. Indeed, policymakers also see a growing chance of an April pause before they lower rates again, once there is greater clarity about trade and fiscal policy, sources told Reuters. By year-end, traders price in around a 60% chance of two rate cuts to follow Thursday's, having priced in a chance of a third move last week. FISCAL VS MONETARY BOOST Markets are hoping Germany's bold move to rip up its fiscal playbook may be a game-changer for Europe's economy. The euro surged to $1.0854 on Thursday, the highest since November 6, the day after U.S. President Donald Trump's election, and well above the near $1.01 levels seen in February, as tariff worries weighed. Germany's bond yields, the benchmark for the euro zone, were set for their biggest weekly jump since the early 1990s as markets braced for a surge in borrowing. Remarkably, traders have even moved to price in the chance that the ECB will start to raise rates again next year, given that the fiscal boost could lift inflation, seeing a roughly 40% chance of a hike by September 2026. With little detail available and the German proposal yet to be approved, it wasn't a factor for the ECB's decision on Thursday, but it further blurs the monetary policy outlook, which analysts had already seen as less certain. "If you throw that much money into an economy, you are going to get quite a difference. It also means inflation will be higher," said RBC BlueBay Asset Management chief investment officer Mark Dowding. A key market gauge of inflation expectations surged following Germany's announcement. It is trading at around 2.22%, only slightly above the ECB's 2% target, and posted its biggest daily jump on record on Wednesday, according to LSEG data going back to 2013. Dowding reckoned the ECB's next rate cut could be its last. "We've been selling short-dated German bonds, thinking the rates market has been pricing in too many rate cuts," he said ahead of the ECB decision. Banks, including Goldman Sachs and Nomura, have also reduced their rate cut forecasts. For markets, uncertainty around the ECB's next moves is a marked departure from the near-certain expectation of a rate cut at every ECB meeting since October. ELEPHANT IN THE ROOM For all the market optimism around a sea change to the bloc's growth outlook, the big question mark is still U.S. tariffs. It remains unclear if such measures will be implemented against Europe. The ECB mentioned trade uncertainty as a factor for ongoing weakness in investment as it revised down its growth forecasts. Aluminium and steel tariffs goes into effect on March 12, but Europe could get hit by substantial reciprocal tariffs as well as separate measures against its automotive sector and other industries. "Markets are underestimating tariffs," said Fidelity International's global head of macro and strategic asset allocation Salman Ahmed. He expects the ECB to reduce rates to 1.75% rather than the 1.5% anticipated earlier, but added that the central bank would likely respond to tariffs by further cutting rates. Danske Bank chief analyst Piet Christiansen said he had not yet revised his call for the ECB to cut rates to 1.50% this year, citing the scale of uncertainty around Germany's fiscal proposals. "You have the number, but that's all you have. You don't have when it's going to be deployed, at what scale." ($1 = 0.9235 euros)
Reuters
06-03-2025
- Business
- Reuters
For markets, German fiscal splurge blurs ECB outlook
LONDON, March 6 (Reuters) - A tectonic shift in German fiscal policy has compounded uncertainty for traders trying to bet on how fast the European Central Bank will cut rates for the rest of the year, with a change to the bank's guidance on Thursday reinforcing that. The ECB cut rates by 25 basis points to 2.50% in its sixth move since last June. But it said that monetary policy was becoming "meaningfully less restrictive," rather than the "restrictive" used before. That supported traders, who had already reduced bets on ECB rate cuts after a deal from Germany's next coalition partners on Tuesday to create a 500 billion euro ($541.40 billion) infrastructure fund and overhaul borrowing restrictions, partly to boost defence spending. "We could have potentially one more cut, a maximum of two," said Aviva Investors senior economist Vasileios Gkionakis, noting the ECB's change in language was a win for the policy hawks and meant to signal that an end to rate cuts is coming. Following the ECB's meeting, traders further curbed their bets on an April rate cut, now seeing less than a 50% chance of a quarter point move, down from over 60% last week. Indeed, policymakers also see a growing chance of an April pause before they lower rates again, once there is greater clarity about trade and fiscal policy, sources told Reuters. By year-end, traders price in around a 60% chance of two rate cuts to follow Thursday's, having priced in a chance of a third move last week. FISCAL VS MONETARY BOOST Markets are hoping Germany's bold move to rip up its fiscal playbook may be a game-changer for Europe's economy. The euro surged to $1.0854 on Thursday, the highest since November 6, the day after U.S. President Donald Trump's election, and well above the near $1.01 levels seen in February, as tariff worries weighed. Germany's bond yields, the benchmark for the euro zone, were set for their biggest weekly jump since the early 1990s as markets braced for a surge in borrowing . Remarkably, traders have even moved to price in the chance that the ECB will start to raise rates again next year, given that the fiscal boost could lift inflation, seeing a roughly 40% chance of a hike by September 2026. With little detail available and the German proposal yet to be approved, it wasn't a factor for the ECB's decision on Thursday, but it further blurs the monetary policy outlook, which analysts had already seen as less certain. "If you throw that much money into an economy, you are going to get quite a difference. It also means inflation will be higher," said RBC BlueBay Asset Management chief investment officer Mark Dowding. A key market gauge of inflation expectations surged following Germany's announcement. It is trading at around 2.22%, only slightly above the ECB's 2% target, and posted its biggest daily jump on record on Wednesday, according to LSEG data going back to 2013. Dowding reckoned the ECB's next rate cut could be its last. "We've been selling short-dated German bonds, thinking the rates market has been pricing in too many rate cuts," he said ahead of the ECB decision. Banks, including Goldman Sachs and Nomura, have also reduced their rate cut forecasts. For markets, uncertainty around the ECB's next moves is a marked departure from the near-certain expectation of a rate cut at every ECB meeting since October. ELEPHANT IN THE ROOM For all the market optimism around a sea change to the bloc's growth outlook, the big question mark is still U.S. tariffs. It remains unclear if such measures will be implemented against Europe. The ECB mentioned trade uncertainty as a factor for ongoing weakness in investment as it revised down its growth forecasts. Aluminium and steel tariffs goes into effect on March 12, but Europe could get hit by substantial reciprocal tariffs as well as separate measures against its automotive sector and other industries. "Markets are underestimating tariffs," said Fidelity International's global head of macro and strategic asset allocation Salman Ahmed. He expects the ECB to reduce rates to 1.75% rather than the 1.5% anticipated earlier, but added that the central bank would likely respond to tariffs by further cutting rates. Danske Bank chief analyst Piet Christiansen said he had not yet revised his call for the ECB to cut rates to 1.50% this year, citing the scale of uncertainty around Germany's fiscal proposals. "You have the number, but that's all you have. You don't have when it's going to be deployed, at what scale." ($1 = 0.9235 euros)
