Is Trump overplaying the chances of peace in Ukraine?

Good morning

After a morning of USD selling yesterday following the downgrade of the US by Moodys, the markets calmed through the rest of the day.  US equity markets finished marginally higher, reversing early losses, currencies were generally unexciting.  GBPUSD ended London hours around 1.3355, EURUSD around 1.1230. US 10 year bond yields had ticked higher through the day but they too were pretty much back to their starting point by the US close. 

This morning we have a slightly weaker US dollar once again, GBPUSD 1.3385, EURUSD 1.1270 and USDJPY down to 144.20 and I wouldn’t be at all surprised to see the pressure on USD mount as the day goes on.

Very difficult to know what to make of the US as it currently stands.  Yes, a huge, strong and pretty stable economy, and as we have seen many countries are eager to make a trade deal rather than face large tariffs as they still look to tap into the US markets.  But a huge deficit and massive debt are also present which makes life very difficult.   Still plenty of talk that inflation as a result of tariffs is yet to fully hit the US economy and that risks of a US slowdown are being underplayed.  Stagflation is not off the table.  Meanwhile Trump’s proposed wide scale tax and spending cuts   could also add several trillion dollars to the US public debt.

And on trade, China seem to be playing a tough hand, saying they would prefer to go it alone than surrender to bad US trade terms.  But does all this lead to a softer US dollar?  Perhaps not.  The Bank for International Settlements have warned of a possible rush for US dollars if certain FX swap positions are unwound, particularly if US market volatility increases. 

Some interesting soundbites coming out of the UK/EU talks which created a bit of excitement but with very few real details.  Fishing quotas and UK food exports to the EU were all discussed and as part of the deals, UK passengers will be able to use EU e-gates although exactly where and when this will come into effect remains to be seen.  All very vague, as was the youth mobility scheme that so far just sees an agreement to talk about it rather than put any firm plans into place. 

What we don’t know yet is whether the deal really is any good or whether we’re being short changed for the sake of a few headlines.  I’d really like to think we are getting something out of this, the fact we are even at the table is a good thing but looking at some of the headlines there is a lot of unhappiness about the deal, particularly the fishing quotas that we have now granted for the next twelve years or so.  Tory leader Badenoch called it a ‘surrender’ while Farage said the fishing industry had been sold out. 

Trump and Putin spoke for some two hours yesterday.  Putin said the call was ‘meaningful’, Trump was far more upbeat suggesting it would lead to ceasefire talks between Ukraine and Russia immediately, although it would appear that there is actually no timescale for such talks.  Russia, I fear, are still preparing for another large offensive in Ukraine and Trump’s promise to Putin of a post-ceasefire trade deal may well be ignored. 

Overnight we’ve had the RBA rate announcement where they did indeed cut rates by the widely expected 25bps to 3.85%.  AUD is a touch softer after the announcement, GBPAUD up around 2.0835 as I type, AUDUSD at 0.6420.  RBA did talk of the huge uncertainty in the global economy right now, mostly as a result of US tariffs and the response to those by other countries.  They see risks to inflation as more balanced but do see it pushing to the top of their band through 2025.

Liverpool lost to Brighton yesterday evening in a match that certainly meant more to Brighton as their hopes of European football are kept alive into the last game of the season. Its Palace v Wolves this evening, with Palace fighting for a finish in the top half of the table to go with their FA cup win.  We also have Man City v Bournemouth this evening, City really need a win to improve their chances of Champions League football next season. 

The latest inflation data from Canada is out this afternoon, otherwise we’ve mostly got Fed officials speaking once again.  Early tomorrow morning we’ll get the latest UK inflation numbers, expected to show a sharp rise from last month. 

-  09.00 BoEs Pill speaks

-  13.30 CAD CPI

-  14.00 Feds Barkin speaks

-  18.00 Feds Musalem speaks

-  22.00 Feds Kuglerf speaks

-  23.45 NZ trade balance

-  00.00 Feds Daly, Bostic, Hammack speak

-  00.50 Japan trade

-  07.00 UK CPI, RPI, PPI