U.S. Pivots Back to Tariff Threats, Sending Equity Markets Lower in Europe and Much of Asia – Currency Thoughts
U.S. Pivots Back to Tariff Threats, Sending Equity Markets Lower in Europe and Much of Asia
March 27, 2025
Share prices on Thursday fell 1.4% in Taiwan and South Korea, 0.6% in Japan, and 0.4% in Australia, and European stock markets so far show losses of 04-0.8% in Germany, France, the U.K. and Italy. In pre-open U.S. trading, some key U.S. automaker and tech company stocks have sold off sharply, but overall indices are down just marginally. However, the 10-year U.S. Treasury yield advanced another four basis points and, at 4.39%, is 23 basis points above the month’s low on March 3.
The dollar also took a hit from fresh tariff warnings, declining overnight by 0.4% against sterling and 0.3% relative to the euro, won and the Australian and New Zealand and New Zealand currencies.
The 10-year Treasury yield rose 4 basis points overnight, extending the increase to 23 bps since March 3. In contrast, 10-year sovereign debt yields are two basis points lower in the four largest economies using the euro.
Perhaps to deflect attention away from accusations of incompetence in the handling of the U.S. bombing in Yemen, President Trump went on the tariff warpath again, announcing a 25% duty on foreign made autos and parts used in U.S-made motor vehicles, unveiling the consideration of a tariff on copper, and warning of significantly larger U.S. tariffs on Canada and the European Union if those countries coordinate their retaliatory responses to U.S. tariffs.
The price of gold rose 1.3% to historical highs, benefiting from the latest wave of tariphobia. Bitcoin’s prices merely marked time overnight, while oil settled back 0.4%.
Policy interest rates at central banks in the Czech Republic and Norway were left unchanged after the latest scheduled reviews of monetary policy. The Czech National Bank’s two-week repo rate had been cut in February by 25 basis points to 3.75%. That reduction followed 275 basis points of easing during 2024 and an initial 25-basis point cut in December 2023. A gradual lifting of the monetary pedal was justified by disinflation that saw the 12-month advance in Czech consumer prices slow from 18.0% in September 2022 to 2.0% by mid-2024, but inflation subsequently moved back above target to a 9-month high of 2.7% last month. According to a released statement, CNB officials at coming policy reviews will be assessing the inflationary implications of economic data and financial market movements but also will keep a close eye on “the actions of key foreign central banks, geopolitical events and developments in trade relations between the USA and Europe.”
Regarding Norwegian monetary policy, officials at the Bank of Norway met analyst expectations by retaining their key interest at its cyclical peak of 4.5%, first reached in December 2023 following an increase that month of 25 basis points, 175 basis points of rate tightening during 2023, a cumulative rise of 225 bps in 2022 and of 50 bps in the second half of 2021. After peaking at 7.5% in October 2022, Norwegian consumer price inflation had slowed nearly to the 2% medium term target with a reading in December of 2024 of 2.2% but powered particularly by an upsurge of food costs then leaped much more than anticipated to 3.6% in February. According to today’s statement from the central bank’s policymaking committee, “the Committee judges that a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon. The policy rate forecast in this Report is consistent with a decline in the policy rate to 4% by the end of the year, followed by a gradual further decline over the next years.” While a drop to target is now seen not be completed until late 2028, the statement includes a bias toward an initial cut happening later this year.
The final estimated U.S. quarterly growth rate in 4Q 2024 has been revised up marginally to 2.4%, so the four-year sequence of growth during the Biden presidency was 6.5% in 2021 followed by 2.2% in 2022, 2.9% in 2023, and 2.8% on average in 2024. The core personal consumption price deflator favored by Federal Reserve officials shows inflation slowing from 5.4% on average in 2022 to 4.1% in 2023 and 2.8% last year, but core PCE inflation picked up to an annualized pace of 2.6% in the fourth quarter from 2.2% in the third quarter. In a separate U.S. data release, new jobless insurance claims last week of 224k was very similar to the 225k reading in the previous week.
Among price data reported in other economies today,
- Icelandic consumer price inflation slid to a 51-month low of 3.8% in March from 4.2% in February and 10.2% in February 2023.
- South African producer prices rose 0.4% on month in February and edged 0.1 percentage point lower to a 1.0% year-on-year increase. Such had peaked at 18.0% in July 2022.
- Malaysian PPI inflation slowed half a percentage point to a 3-month low of 0.3% in February.
- Zambian CPI inflation retreated from a 39-month high of 16.8% in February to 16.5% this month.
Austria’s March manufacturing purchasing managers index rose 0.2 points to a 25-month high but stayed below the expansion-versus-contraction breakeven 50 level with a reading of 46.9.
Spanish retail sales in February were 3.6% above their year-earlier level, and Lithuanian retail sales recorded a 2.9% advance compared to February 2024. Danish retail sales, however, posted their weakest 12-month change (-0.1%) in a year and a half.
In the euro area, on-year growth in money and credit accelerated during February. M3 money rose 4.0% year-on-year versus a three month average of 3.6% in January. Overall credit rose 1.7% between February 2023 and last month compared to a rise of just 0.9% between December 2023 and December 2024. On-year growth in loans to households of 1.5% in February extended the upward trend from 1.1% in December to 1.3% in January, and likewise, bank lending to non-financial firms picked up to a 17-month high of 2.2% last month from 2.0% in January.
The U.S. merchandise trade deficit last month again surpassed expectations at a gigantic $147.9 billion, down from an upwardly revised gap of $155.6 billion in January.
An interest rate decision later today is due from the Bank of Mexico.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Norway, Czech National Bank, U.S. GDP growth and merchandise trade deficit
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