Morning Report
February 25, 2025
“Tariff headlines are taking hold once again after Trump again promised 25% tariffs on Canada and Mexico, although the market is approaching the deadline with much more scepticism this time around. Meanwhile, concerns are growing about the US economy losing momentum.”
Tim Hallinan – Trading Director
USD
Renewed tariff threats and a selloff in the equity market meant that softer risk appetite helped to support the dollar yesterday. Trump said that he fully intends to implement the 25% tariffs on Mexico and Canada on the 3rd March deadline, after some concessions led to a 30-day delay earlier in the month. The market still reckons that this is a game geared towards strengthening his position in the next round of negotiations, but as we get closer to Monday traders might start embedding a risk premium into CAD and MXN once again. Meanwhile, investors’ unease about a slowdown in the US economy continued to grow after disappointments in the regional activity surveys from Chicago and Dallas, following softer retail sales and PMI data in recent weeks. Citi’s US Economic Surprise Index is now in negative territory for the first time since September, meaning that the data has been skewing to the downside compared to economist estimates.
Today the focus is on the February consumer confidence figure, which is expected to fall from 104.1 to 102.5. Because it is so partisan, it is a data point that does not normally gather too much attention. But as markets try to sniff out the chances of a genuine slowdown in activity, there should be a higher sensitivity today, particularly after the drop in January.
GBP
The pound struggled to hold onto its gains yesterday and has slipped 0.5% from the two-month peak where it kicked off the week. The BoE’s famously dovish Swati Dhingra once again called for a quicker pace of rate cuts during a speech last night, where she criticised the ‘gradual’ approach favoured by most of the MPC for its unnecessary drag on UK growth. Chief Economist Pill is on the docket today, whose hawkish skew means that the base case will be a renewed call for cautious rate cuts. A dovish assessment of the recent data would be negative for sterling, as the market is currently still leaning towards only two further cuts this year.
EUR
The impact of the German election was short-lived for the euro. Incoming Chancellor Friedrich Merz has already signalled his intention to form a coalition with the SPD, and he has so far wasted no time in trying to rush through some extra defence spending. French President Macron was the first European leader to visit Trump in Washington yesterday, which involved a friendly but also rather tense press conference where Macron disputed Trump’s claim that all Europe’s aid to Ukraine was in the form of loans. The main data today is the ECB’s negotiated wages indicator for Q. This spiked to more than 5% in Q3 thanks to one-offs, but it never derailed the expectation that salary growth would cool considerably into 2025. ECB policymakers will feel much more comfortable with cutting rates several more times if this comes in weaker today.
Markets
Stocks plunged across the board yesterday as markets became fearful of a slowdown in growth and a North American trade war. Questions around whether the big US tech companies are justified in spending many billions on AI capex surfaced once again, leading the tech-heavy Nasdaq down 1.2%. Germany’s DAX managed to squeeze out a gain following the election.
Main Economic Events (All Times CET)
11:00am: Eurozone Negotiated Wages
4:00pm: US Consumer Confidence
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