ACM Update 06-05-25
The first 100 days of Trump 2.0 are now behind us, with US economic data still suffering. Consumer Confidence slumped again in April and the US economy shrank for the first time in three years. The Non-Farm payrolls figure for jobs added to the US economy, remains buoyant though.
Elsewhere, Rachel Reeves returned from Washington empty-handed, having hoped to be boasting a trade deal. In Europe, power cuts swept across the Iberian peninsula, likely to deliver a costly hit to growth in Spain and Portugal.
This week we have interest rate announcements from both the Federal Reserve and Bank of England. These arrive on Wednesday and Thursday respectively, with the latter looking likely to deliver a rate cut.
With President Trump busy telling the world about the successes of his second term thus far, it was back to fundamental US economic data for once. The first few days of a new month always provide the latest information on the US employment market, thus these were the focal point of last week.
Some of the figures don’t make for pretty reading for the President, starting off with the JOLTS Job Openings figures. These recorded the lowest reading since January 2021, ironically the last month of Trump’s first term.
The same could be said for Consumer Confidence figures, which have declined for six consecutive months since the November election victory. They now sit at their lowest since the pandemic, in July 2020.
US Advance GDP figures showed the economy shrank in Q1 by -0.3%. This demonstrates the nervousness of consumers, even before Trump fully rolled out his tariffs. For context, the final quarter of 2024 saw the economy grow by 2.4%. Trump blamed the numbers on the outgoing Joe Biden, despite the former President only spending 20 of those 90 days in charge.
There were two better figures though. The headline Non-Farm Payrolls data saw an above-forecast reading of 177,000 jobs added to the economy in April, albeit slightly down on the month before. This demonstrates some resilience in the jobs market, despite the recent uncertainty.
We also saw the Fed’s chosen inflation metric of Core PCE Inflation, show a softening to 2.3% (annualised). Whilst heading towards the 2.0% target, we are unlikely to see any action from the Federal Reserve this week.
From Trump’s lectern, we heard plenty about how well he had done in his second term thus far. The 100th day speech saw him boasting his successes as a “revolution in common sense” and mocking his predecessor Biden. There was little mention of his stock market performance though.
After a healthy election victory last Monday, Donald Trump will soon no doubt be going head-to-head with Canadian Prime Minister, Mark Carney. The Liberal leader did not quite win an outright majority however, so will require support from other political parties to battle Trump. The former Bank of England and Bank of Canada Governor will look to draw on these experiences for his economic battle.
Despite a (very) mixed bag of US data, the Dollar in fact strengthened against most majors last week. Trade war fears with China cooled slightly, and the US data that was released could easily have been significantly worse. This helped provide some USD support, as shown in the below GBP-USD chart from last week:
On the UK side there was little by the way of market events, as is often the case in the run up to a Bank of England meeting. What was certainly disappointing for the Pound was Rachel Reeves returning back from Washington, empty handed. The UK Chancellor had expected to be able to give herself a pat on the back as the first country to agree to a trade deal with the Trump Government, but this didn’t materialise.
Having flown back with nothing to show for her trip, Reeves quickly changed tact suggesting that a trade deal with the EU was “more important” than anything they are negotiating currently with the US.
This was a move that will no doubt hinder any slither of a remaining chance of a favourable deal with the US. In fact, the shadow business secretary was quick to point out to Reeves that the UK already has a tariff-free trade deal with EU.
Aside from this there were a couple of UK data releases, neither of which were particularly buoyant for the housing sector. April’s stamp duty changes seem to have kicked in negatively. According to lender Nationwide, house prices fell in April by 0.6% month on month, with the tax changes having kicked in on the first of the month. Prices are still up by 3.4% year on year.
The number of mortgage approvals in April also dipped slightly to 64,000 which marked the lowest reading since August of last year. Local elections towards the end of the week saw losses for Labour, as well as traction from Nigel Farage’s Reform UK party. Overall, a fairly poor week for GBP versus the Euro and Dollar.
It was a turbulent week for the Eurozone, kicked off by nationwide power cuts for Spain and Portugal last Monday. For two of the EU’s strongest growth economies over the last 12 months, both being completely paralysed for between eight and twenty-four hours will no doubt make a dent at worst in output.
Aside from the electrical issues, some Eurozone figures were definitely pointing in the right direction. Spanish inflation is getting close to 2% despite the buoyant economy, with the country now at 2.2% in the latest figures. This was down from the 2.3% of last month but above the 2.0% hoped for. Quarterly economic growth in the country was 0.6% in Q1, just under market estimates but still impressive compared to other corners of the bloc.
For context, French figures were also released. These showed a meagre 0.1% of growth, balancing out the negative equivalent from the final quarter of 2024. German CPI figures continued to show unwanted upward pressure on inflation, as the metric grew by 0.4% month on month. This translated to 2.9% overall and could provide complications to the ECB’s gradual rate cutting approach.
The picture for the bloc as a whole remains better though. The latest Eurozone-wide Flash CPI Estimate last week delivered a further dip to 2.2%. Provided no further nasty surprises arrive from the German data ongoing, we can expect another possible rate cut from the ECB on 5th June.
Sterling-Euro traded in a relatively narrow range of 0.5% last week, as illustrated in the chart below.
The week ahead:
Tuesday – EU/UK Services PMIs (08:15-09:30 UK time), EU PPI (10:00), Trump-Carney Meeting
Wednesday – UK Construction PMI (09:30), EU Retail Sales (10:00), Federal Reserve rate announcement (19:00) & Press Conference (19:30)
Thursday – Bank of England rate announcement (12:00), US Unemployment Claims (13:30)
Friday – BoE Bailey speech (09:40), BoE Pill speech (12:15), Canada Unemployment Rate (13:30), Fed Waller speech (16:30)
Following on from incumbent electoral victories in Canada and Australia over the last week, both countries were seemingly seeking political stability in their fight against Donald Trump and his tariffs. Meanwhile the political instability in Germany has emerged again, with Conservative leader Friedrich Merz falling short in a parliament vote today. The Euro has thus weakened off slightly as a result.
The main highlight of today will be the meeting between Donald Trump and Mark Carney. The new Canadian Prime Minister will face Trump and the media in the Oval Office, before presumably discussing trade negotiations between the two countries. Both currencies could see volatility as a result.
In terms of economic announcements, the latest policy meetings from the US and UK are about as big as they come. First up will be the Federal Reserve on Wednesday evening, who look likely to keep policy on hold amidst the ongoing Trump uncertainty. The 19:30 (BST) press conference from Chair Jerome Powell which takes place afterwards, will likely provide more substance towards future policy moves.
The Bank of England take the stage on Thursday lunchtime. With inflation falling, slow growth and concerns about foreign trade policy, expectations are for all nine member of the Monetary Policy Committee to vote for a cut in the headline interest rate. This seems to already be priced in, but is by no means a certainty.
Eurozone information remains limited, thus the developing German political situation will be a key driver on the fortunes of the single currency this week.
Despite a quieter week last week, we can expect plenty of movement this week with interest rate announcements in the UK and US. In the age of Trump, policy can be difficult to predict, so markets may well fluctuate as a result.
For more information on the currency hedging tools at your disposal, make sure to reach out to the Aston team.
Have a great week.
