Trump Speech, Lutnick’s Scoop, and Across-the-Board Large Rise in Long-Term European Interest Rates – Currency Thoughts
Trump Speech, Lutnick’s Scoop, and Across-the-Board Large Rise in Long-Term European Interest Rates
March 5, 2025
President Trump’s speech to a joint session of Congress last night lasted 99 minutes (a multi-decade record) but was predictable for the most part. The element of policy surprise was leaked by Commerce Secretary Lutnick, who indicated that 25% tariffs imposed against Canada and Mexico could be scaled back soon, depending on the result of findings on a study by the President of how completely those neighboring countries met the rules of the 2020 trade accord negotiated in Trump’s first term. Tariff reductions could ensue if no cheating is found on what that accord required. The auto industry is the sector that might get the most relief from any tariff modification. Stay tuned.
Ten-year sovereign debt yields in Germany, France, Italy, Spain, the Netherlands, Greece and Portugal rose overnight by between 21 and 24 basis points, and the comparable British yield is 13 basis points higher. Incoming German Chancellor Merz has proposed significantly increased spending on security/defense and infrastructure that will entail modification in the strict limits on fiscal deficit spending and that therefore will need a parliamentary majority of at least two-thirds. The vote is likely to be taken next week. Ten-year U.S. Treasury and Japanese JGB yields, by contrast, are respectively unchanged and up just two basis points from Tuesday closing levels.
In other financial market action overnight,
- The weighted DXY dollar index fell 0.8% to 4.8% below its 52-week high set in the final week of the Biden presidency. Key bilateral dollar declines overnight amounted to 0.9% against the euro, 0.6% versus the kiwi, 0.5% relative to the Mexican peso and Australian dollar, 0.4% vis-a-vis the Canadian dollar, and 0.3% against sterling. The dollar alternatively firmed 0.2% versus the yen.
- Stock markets in the Pacific Rim recovered 2.8% in Hong Kong, 2.4% in Indonesia, 1.2% in South Korea, 1.0% in India, 0.5% in China and 0.2% in Japan but fell by 0.7% in Australia and 0.5% in New Zealand. Stock markets gains in the four largest euro zone economies currently range from 1.6% in Spain to 3.4% in Germany, The rebounds in the British FTSE is modest by comparison, and U.S. futures are merely unchanged following ADP lower-than-expected estimate that U.S. private jobs rose only 77k last month. Such a rise would be the smallest in 7 months and about half what analysts were anticipating.
- Bitcoin‘s price fell on the ADP revelation but still shows a net rebound of 2.6% from Tuesday’s close.
- Whereas the price of gold has climbed another 3.5% today, oil is 1.4% weaker.
There are no central bank meetings to report on, but market-influencing news was made by monetary authorities in both New Zealand and Japan. Reserve Bank of New Zealand Governor Adrian Orr since 2018 resigned unexpectedly with three years remaining on his current term. Fatigue and frustration were the presumed reasons, but no explanation was formally provided. Christian Hawkesby will become acting governor of the RBNZ. Bank of Japan Deputy Governor Ushida gave a speech consistent with more interest rate increases in the future but that argued against accelerating the speed of such changes.
The Fed Beige Book of U.S. regional economic trends gets published this afternoon.
Producer price inflation in the euro area leaped from 0.1% in December to a 22-month high of 1.8% in January, as the energy component’s 12-month change swung from -1.6% to +3.5%, while all other PPI components collectively accelerated from 0.1% in December to a 12-month 0.4% rise in January.
Italian GDP growth last quarter got revised 0.1 percentage point higher to 0.1% versus the third quarter and 0.6% compared to the same quarter one year earlier. Calendar year growth of 0.7% matched 2023’s post-Covid low.
French industrial production far undershot expectations in January, dropping 0.6% on month and 1.6% on year.
Swiss consumer price inflation, which crested in August 2022 at 3.5%, slid 0.1 percentage point to a 45-month low of 0.3% last month.
U.S. mortgage applications leaped 20.4% last week, as the 30-year fixed mortgage rate dropped 15 basis points to a 12-week low of 6.73%.
Today’s data menu includes numerous additional purchasing manager surveys from February.
Lebanon’s private sector PMI edged 0.1 index point lower to a 2-month low of 50.6. Private sector PMI readings in Hong Kong and Singapore fell to 8- and 9-month lows of 49.0 and 50.7.
The United Arab Emirates’ non-oil PMI matched January’s 2-month low of 55.0.
Euroland’s composite purchasing managers index printed at stagnant 50.2. The reading was unrevised from its preliminary estimate and also matched January’s 5-month high. The full report also revealed that service sector wage growth remains higher than hoped, which may crimp the speed of future monetary relief from the ECB.
Service sector purchasing manager indices from Euroland member countries were topped by Spain‘s 2-month high of 56.2, then Ireland’s 13-month low of 53.2, Italy’s 8-month high of 53.0, Germany’s 3-month low of 51.1 and a 16-month low in France of 45.3. Just a reminder: a score of 50 on a scale from 0 to 100 connotes neutrality.
Japan’s composite and service sector PMIs were revised somewhat above preliminary indicators to a 3-month high of 52.0 and a 6-month high of 53,7, respectively. The surveys also reveal weakening sentiment about the future and rising inflation.
Australia composite and service PMI readings were each revised lower to two-month lows of 50.6 and 50.8.
India’s composite and service PMI scores were also revised downward. The composite reading, a 2-month low of 58.8, nonetheless paints a continuing robustly growing economy. The services index of 59.0 was 2.5 points less than estimated initially but conveyed significantly stronger activity than January’s 26-month low of 56.5.
China‘s composite and service PMI readings of 51.5 and 51.4 were a tad better than analysts expected and their highest marks in three and two months, respectively. China’s National People’s Congress, which is meeting this week, rolled out a 5.0% GDP growth forecast for 2025 that it hopes will be buoyed by allowing the relative size of the government’s fiscal deficit rise above 3%.
The unrevised composite British PMI reading of 50.5 was at a 2-month low and only marginally better than December’s 14-month low. Like the composite index, the services PMI improved to a 2-month high of 51.0.
Australian GDP grew 0.6% last quarter, twice the quarterly pace in the prior quarter and resulting in the largest year-on-year year growth (1.3%) in 3-1/2 years.
But in South Korea, GDP went up just 0.1% last quarter and was unchanged on net from the economy’s size in the first quarter of 2024. Year-on-year growth of 1.2% was the slowest in a year and a half.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: composite and service PMI readings February 2022, Euroland PPI, Trump speech
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