Optimism and caution mix as the trading day unfolds. US President Trump has suggested a potential new trade deal with China, and the EU’s Sefcovic has indicated a willingness to discuss reducing the 10% US auto tariff. These developments provide a backdrop to the FOMC Minutes, which shed light on the Federal Reserve’s stance and its influence on the dollar.
The FOMC Minutes revealed discussions on pausing or slowing the balance sheet runoff, given debt ceiling dynamics, which supported US Treasuries. Fed officials like Jefferson emphasized patience, while Goolsbee highlighted the need for further inflation decline before rate adjustments.
Currency markets reacted to the FOMC Minutes, with the US dollar weakening. EUR and GBP remained rangebound, while USD/JPY hit a fresh year-to-date low. Commodities await tariff clarity and developments in Ukraine, where Trump’s critical comments on Zelensky contrast with constructive US advisors.
APAC markets traded mostly softer, except for China, boosted by tariff optimism. European bourses are expected to open slightly firmer.
Key Economic Indicators and Events
Looking ahead, keep an eye on:
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US Initial Jobless Claims and Philly Fed Index
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EU Consumer Confidence
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NZ Trade, Australian PMI, and Japanese CPI
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Speakers including ECB’s Makhlouf, Fed’s Goolsbee, Musalem, Jefferson & Barr
Earnings reports are due from major players like Alibaba, Walmart, Unity, Wayfair, and others.
US stocks finished mixed on Wednesday. T-Notes gained after the FOMC Minutes, signaling the Fed’s cautious approach. Geopolitical concerns surrounding Ukraine and Russia peace talks contributed to market unease. The SPX closed at 6,140 (+0.18%), NDX at 22,175 (+0.05%), DJI at 44,627 (+0.16%), and RUT at 2,281 (-0.46%).
The Fed’s Perspective
The FOMC Minutes indicated participants found it appropriate to hold rates, with the economic outlook largely unchanged from December. They are poised to assess economic activity, the labor market, and inflation carefully, desiring further progress on inflation before further adjustments. Most participants recognized uncertainty, suggesting a cautious approach.
Trade and Tariffs
Trump intends to announce tariffs on cars, semiconductors, pharma, and lumber, while considering a 25% tariff on lumber. Concurrently, the EU Trade Commissioner Sefcovic asserted there’s no unfairness in trade with the US and is willing to discuss reducing the EU’s 10% tariff on cars as part of a broader negotiation.
Fed and Political Commentary
Fed Vice Chair Jefferson noted the Fed can take time in weighing the next move, highlighting the strong US economy and a restrictive policy stance, but with elevated inflation. Fed’s Goolsbee echoed that rates can come down once inflation is in check.
Trump expressed his desire to cut taxes, boost the economy, and even floated a concept where DOGE savings would be distributed to American citizens and used to pay down debt.
Global Market Overview
APAC markets generally declined due to geopolitical uncertainty and Trump’s tariff threats.
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ASX 200: Pressured by mining, materials, and financials.
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Nikkei 225: Impacted by a stronger currency.
The Hang Seng and Shanghai Comp conformed to the downbeat mood.
Currency markets saw the DXY gradually soften after the FOMC Minutes. The EUR/USD traded rangebound, while the GBP/USD attempted to recover. The USD/JPY retreated to a fresh YTD low.
Commodities and Crypto
Crude futures were marginally lower amid geopolitical uncertainty, while spot gold saw mild gains as the dollar softened. Bitcoin gained, rising back above USD 97,000 following comments from Trump about making the US the crypto capital.
Asia-Pacific Headlines and Data
Key headlines included China holding its Loan Prime Rates steady and RBNZ Governor Orr expressing a more positive outlook on the inflation situation. Recent Australian data revealed strong employment at 44.0k and an unemployment rate of 4.1%.
Geopolitical Developments
Trump claimed he spoke with Presidents Putin and Zelensky to end the war, repeating claims that suggested Ukraine started the war. The White House is more optimistic on peace deal, but the Russian general staff claimed Ukraine’s losses exceeded one million military since the start of the military operation.
