ACM Update 03-03-25
Sterling-Euro nudged up above 1.21 towards the end of last week, touching a high dating back to just before Christmas. This was off the back of a nervous outlook from the latest ECB meeting minutes, rather than anything GBP-positive.
US data began to show some slight wobbles, as the latest Consumer Confidence report showed Americans are growing more anxious about the potential effects of Trump’s policies on the wider economy. This was even before Friday evening’s Oval Office row with President Zelensky.
The first week of March features both the latest interest rate meeting from the European Central Bank on Thursday and the latest US jobs report in the form of Non-Farm Payrolls on Friday.
Trump continues to make headlines, especially amidst his meetings and conversations around ending the Russia-Ukraine conflict. The President welcomed Keir Starmer to the White House last week, as trade deals dominated proceedings. Trump and Ukrainian President Zelensky featured in a bizarre sparring match also featuring US Vice-President JD Vance, all live in front of the world’s media.
Outside those white walls, is the Trump bubble bursting? Stock markets and FX markets have both seen US weakness in recent weeks and now Consumer Confidence figures look to be moving the same way. The latest reading marked the lowest for the figure in ten months, as Americans become nervous about the ramifications of his policies.
Other US data releases also show signs of nerves. The weekly unemployment claims posted their highest figure since early October last year, as Elon Musk continues his mass clear-out of government departments. It isn’t too much of a reach to assume that these two events might be connected.
For now, US economic data from the latter part of last year (still in the Biden presidency) remains strong. Figures released last week showed US GDP grew by an annualised 2.3% in the quarter. Whilst this looks positive, it is down from the 3.1% seen in Q3, and the 3.2% in Q4 of 2023.
Inflation does seem to be beginning to slow though, seen in the release of Core PCE inflation on Friday afternoon. The Fed’s preferred inflation measure delivered its smallest annualised increase in four years, as spending dropped during the colder weather of January. The figure fell from 2.9% to 2.6% in the space of a month.
If this passes through into overall CPI inflation, one could assume that the Federal Reserve may need to look at amending their interest rate strategy sooner rather than later. For now, rate-setters seem comfortable with their policy stance. Raphael Bostic was one of those who spoke last week, suggesting that the bank’s employment mandate was being hit, but price stability needs to be more under control. “We need to stay where we are” was the phrase associated with interest rates.
Overall, the Dollar gained slightly last week against sterling but traded in a relatively narrow range of just over one per cent. Movements on the pair can be seen in the chart below:
UK news was significantly quieter than the previous week, with little in the form of data releases. The latest Ofgem announcement on the energy price cap was made, suggesting a 6.4% increase to come in April. Naturally this has the potential of impacting inflation for the following months, along with the Underground and National Rail price hikes kicking in this week.
Aside from Sir Keir Starmer’s trip to the US on a trade mission to befriend Donald Trump, the remainder of UK market events were driven by speeches from members of the Bank of England’s Monetary Policy Committee.
Deputy Governor, Dave Ramsden, maintained his “gradual and careful” stance in a speech in South Africa. He spoke of concerns that inflationary risks are now two-sided, rather than being worried about the reading undershooting the Bank’s 2% target.
Swati Dhingra was one of two calling for a larger interest rate cut in the January meeting. She commented that even though the committee all agreed to use the word “gradual”, there is still no firm consensus that this will mean a 0.25% rate cut per quarter, for example. She believes that such a pace of cuts would still leave interest rates too high come the end of 2025 and is calling for more cuts in order to boost economic growth.
Logically, this would make sense given it would provide more disposable income for mortgage-holders, but we shall see what action the committee chooses to take in a couple of weeks. Dhingra does also have one eye on the impact that US trade tariffs will have on global, as well as UK, inflation.
The Bank’s Chief Economist, Huw Pill, remains “cautious” in his own comments. He still doesn’t believe the battle against inflation is finished, suggesting a likely vote for a pause on his part next time around.
The majority of market movement last week was driven by Eurozone events. The fallout from the German elections continued, as incoming chancellor Friedrich Merz declared a new stance in Europe without the need for the US. How will US (or more Trump) and German relations unfold over the coming months?
Driving currencies on Thursday was the release of the European Central Bank’s latest meeting minutes, from 30th January. These could comfortably be summarised with one word, caution. Rate-setters from across the bloc saw a “clear case” for a 0.25% rate cut four weeks ago, agreeing that inflation is still heading towards their 2% target. The latest CPI reading showed 2.5%, for reference.
There was concern from some that the economic outlook delivered in December was too optimistic though, with downside risks impacted by international trade. The minutes suggested there was currently no room for forward guidance on monetary policy, whilst ongoing decisions will remain data driven.
The nervous undertone did the Euro little by the way of favours, as the single currency lost circa 0.5% to both the US Dollar and Sterling, shortly after the data release.
Other Eurozone data published included another lacklustre quarter of growth in Q4 from the German economy. This shrank by -0.2% in the period, whilst Retail Sales for February grew by less than expected at 0.2%. But at least they showed growth for the first time since September’s data.
Inflation in one of the bloc’s best growth performers, Spain, was estimated at 3.0% in February. Energy prices have risen slightly, but the economy remains buoyant, along with its Iberian neighbour Portugal.
Sterling-Euro hit a ten-week high as mentioned. The peak was just 0.5% beneath a high dating back to mid-2016, shortly after the Brexit Referendum….. Movements last week can be seen in the chart below:
The week ahead:
Monday – EU/UK/US Manufacturing PMIs (08:15-15:00 UK time), UK Mortgage Approvals (09:30), EU CPI Flash Estimate (10:00)
Tuesday – Reserve Bank of Australia meeting minutes & Retail Sales (00:30)
Wednesday – Australian GDP (00:30), EU/UK/US Services PMIs (08:15-15:00), US ADP Non-Farm (13:15), Federal Reserve Beige Book (19:00)
Thursday – EU Retail Sales (10:00), ECB Rate Announcement (13:15) & Press Conference (13:45), BoE Mann speech (20:15), Fed Waller speech (20:30)
Friday – US Non-Farm Payrolls & Unemployment Rate (13:30), Fed Powell speech (19:00)
March already, and the themes of this week will be two-fold. How aggressive do the European Central Bank go in their Thursday rate decision? And how did the US jobs market perform in February? The former could well dictate how the Euro trades over the coming weeks, whilst the latter could well offer insight into what the Federal Reserve will do in two weeks’ time.
The ECB seems likely to opt for five in a row come Thursday lunchtime, as it seeks to change tact from inflation-battling to growth-boosting. Being almost a concrete outcome, the conversation surrounding forward guidance or any changes in language will be most eagerly awaited.
Major US data comes in two forms. The Federal Reserve’s Beige Book is released on Wednesday night, two weeks before the next Federal Reserve meeting takes place. This contains all the latest economic data and performances from across the US.
Friday then delivers the February jobs data, in the form of Non-Farm Payrolls. We saw a slight slowdown last month and one wonders if that will continue. Combined with a drop in consumer confidence falling already, any slowdown in the jobs market may nudge the Federal Reserve towards a rate cut sooner rather than later.
On the UK side, little by the way of excitement. Aside from Mortgage Approvals data and the latest performance figures from the Services and Manufacturing sectors, it may be a quiet week. Barring any Starmer or Reeves happenings.
Rates remain choppy at present, so make sure to engage with the team on anything upcoming. Being aware of requirements in advance allows us to be more proactive in alerting clients to market movements. We will be happy to assist as always.
Have a great week
