Bonds bid and dollar down on soft US data
Updated Updated Wed, 2025 June 4 09:29
* Donald Trump’s 50% steel and aluminium tariffs take effect
* Germany backs €46bn in corporate tax breaks to spur growth
* Bank of Canada holds, but July rate cut still possible
* Stocks mixed after soft jobs data, Trump’s rate cut call
FX: USD was relatively quiet but succumbed to selling through the US session, especially after softer than expected ADP employment data and weaker ISM Services. President Trump’s increased steel and aluminium tariffs of 50% came into force yesterday. He also requested trade partners’ “best” tariff offers by yesterday but there doesn’t seem to be much news on this. Similar with the Trump-Xi call though some reports say that will take place on Friday. after Trump labelled Xi “tough”. This week’s low is 98.58 ahead of the longer-term low at 97.92.
EUR got above 1.14 again. The PMI data was revised higher with the composite pushing into expansionary territory above 50. All eyes are on today’s ECB meeting with a 25bps cut fully priced. What happens next is key for markets, with little guidance likely and another 25bps move expected by the end of 2025.
GBP was better bid on dollar selling in cable. The final PMI figures were revised higher with the composite climbing into expansionary territory at 50.3 from 49.4. Recent BoE comments have been fairly neutral near-term for rates and more cautious further out. The recent three-year high is 1.3592.
USD/JPY moved lower after the weak ADP data in the US. The Asian session saw media reports about BoJ deliberations and an apparent lack of a clear consensus on the topic of unconventional (balance sheet) normalisation and the pace of tapering for next year.
AUD two-way price action continued with the aussie leading the majors and again moving away from the 200-day SMA at 0.6441. Soft GDP data was overlooked with the figures heavily influenced by extreme weather. CAD dipped to fresh cycle lows at 1.3651 as the BoC left rates on hold. There was a clear consensus to stand pat and no forward guidance due to ongoing uncertainty. There are around 35bps of easing priced in for 2025.
US stocks: US stocks closed mixed after choppy price action. The S&P 500 added 0.01% to settle at 5,970. The Nasdaq closed up 0.27% at 21,722. The Dow Jones finished lower by 0.22% at 42,427. Communication services was the big outperformer, with strong gains in Meta (+3.16%) with the company reportedly courting Hollywood for exclusive content for its new headset, while Google pared some of its prior day’s weakness. Apple saw slight losses after a broker downgrade on threats to near-term growth. Energy and Utilities were the main laggards.
Asian stocks: Futures are mixed. Asian markets were mostly higher on optimism around Trump-Xi talks expected to take place on Friday. The Hang Seng and the Shanghai Composite were positive though traders were awaiting the potential Trump-Xi call. The Nikkei 225 advanced as yen weakness helped but was capped by the 200-day SMA at 37,847.The ASX 200 saw energy outperformance boost the index even though Q1 GDP came in softer.
Gold: Steadied below $3,400. Central banks added to their global gold reserves in April, but purchases were 12% lower than the previous month and below the 12-month average, according to the latest data from the World Gold Council. The pace of buying has slowed as prices hit record highs. April marked the second straight month of slower accumulation.
Day Ahead – ECB Meeting
A quarter-point ECB interest rate cut later today is a done deal for markets – that takes the deposit rate to 2%. The question now is whether the ECB pauses after what will be an eighth-rate reduction in the past year. Money markets expect the ECB to hold steady come July before cutting once more before year-end with around 54bps of cuts priced in for 2025.
The economy is holding up better than anticipated and pausing allows ECB chief Lagarde time to assess the impact of US tariffs, especially with the simmering tensions between US and China. Of course, EU – US talks are front and centre and the 50% pause to July 9 is positive, but large gaps remain between the two sides.
For the accompanying macro projections, expectations are for growth to be revised down for both 2025 and 2026, while inflation is likely to be trimmed for 2025 to 2.0% (from 2.3% in March) but increased for 2026 to 2.3% (from 2.0%).
Chart of the Day – EUR/USD eyes up ECB meeting
This week’s eurozone inflation data showed the crucial services inflation dropping sharply. The softening in price pressures points to possibly more dovish language at today’s ECB meeting. The flipside is a neutral cut and a shift away from the easing bias that has dominated ECB communication over the past year or so. No guidance is expected from the Governing Council and President Lagarde with uncertainty currently so high. The euro’s multi-month bull trend remains intact with the recent retracement in mid-May finding support at the 50-day SMA, now at 1.1231. There is additional support at the minor Fib level of this year’s rally at 1.1243. This week’s high at 1.1454 needs to be broken to see the three-year top at 1.1572.
