📈 Market Report.
📊 Today we will have inflation data for both Europe and the US. In Europe we will have the French and German CPI, and in the US the core PCE.
🏦 Yesterday, the European Central Bank (ECB) cut interest rates as expected, lowering the deposit rate to 2.75% from 3.0%. The ECB stuck to its view that inflation in the euro zone is increasingly under control. The ECB said the “disinflation process is well on track,” as wage growth is moderating. The ECB also lowered the rate at which banks can borrow from it for a week to 2.90% and for a day to 3.15%.
🌎 President Donald Trump has warned BRICS countries again (Brazil, Russia, India, China, and South Africa) against replacing the U.S. dollar as the global reserve currency, threatening 100% tariffs if they do so. Russia has previously said any U.S. attempt to compel countries to use the dollar would backfire, as the BRICS grouping has been discussing the possibility of creating a common currency. A study by the Atlantic Council found that neither the euro nor the BRICS countries have been able to significantly reduce global reliance on the U.S. dollar so far.
📉 While President Trump wants interest rates to drop globally, the Federal Reserve is diverging from other central banks by keeping rates on hold for now, despite Trump’s demands. The European Central Bank, Bank of Canada, and Bank of England have all cut rates recently, which could strengthen the U.S. dollar and complicate Trump’s trade goals by making imports cheaper and U.S. exports more expensive. The divergence in monetary policy between the Fed and other major central banks is putting upward pressure on the U.S. dollar, which goes against Trump’s desire for a “rebalancing” of global trade. The U.S. economy has remained relatively strong compared to Europe, allowing the Fed to take a more cautious approach to further rate cuts, while other central banks feel the need to be more aggressive.
📊 Reuters has shared very interesting graphs comparing inflation rates and interest rates by country. We can observe cases such as Japan, where the inflation rate far exceeds the interest rate, which could lead to clear rate hikes. On the other hand, countries like New Zealand, with a benchmark interest rate of 4.25% against inflation of 2.2%, have enough room to cut rates. Even the UK shows a reasonable cushion, with an interest rate of 4.75% and inflation of 2.5%. In Europe, however, we face a more delicate situation: inflation seems to be rising recently and is dangerously close to the benchmark interest rate of 2.75%. We could soon see Europe with inflation exceeding interest rates, generating negative real yields, which would represent a significant macroeconomic challenge.
💻 Microsoft and Meta CEOs have defended their massive spending on building computer networks, arguing it is crucial for staying competitive in the new AI landscape. Microsoft has allocated $80 billion for AI in its fiscal year, while Meta has pledged up to $65 billion. However, some investors are losing patience with the hefty spending and lack of big payoffs, with Microsoft’s shares down 6% after missing Azure cloud growth estimates. DeepSeek’s breakthrough has highlighted the need for more efficient and cost-effective approaches to AI development and deployment, with lower costs emerging as a key strategic advantage.
🇪🇺 The European Central Bank (ECB) President, Christine Lagarde, has expressed confidence that no European Union country will choose to add Bitcoin to its monetary reserves. Lagarde cited concerns over liquidity, security, and potential links to criminal activities. The comments come in response to comments by the Czech National Bank governor, Ales Michl, who suggested allocating up to 5% of the bank’s reserves to Bitcoin. ECB officials have dismissed the idea due to Bitcoin’s volatility. The Bundesbank chief, Joachim Nagel, has rejected Bitcoin and other cryptocurrencies as “digital tulips” and argue they do not meet the criteria of secure, liquid, and transparent reserve assets.However, former German Finance Minister Christian Lindner had also previously aired the possibility of including Bitcoin in central bank reserves. In Switzerland, a campaign is underway to force a national vote on whether the Swiss National Bank should be required to add Bitcoin to its reserves. Despite the widespread refusal to accept bitcoin as a financial asset, tax agencies are reminding citizens that if authorities are wrong and bitcoin increases in value, they must pay taxes on the profits.
📈 Market View:
📈 US futures resume their advance. Mini S&P 500 futures are currently close to 6,125 points, with the intention of closing the chapter of declines that began this week. Nasdaq 100 futures are close to 21,800 points.
💵 The dollar index recovers 108 points, showing the strength of the currency in response to the European Central Bank’s rate cut. Meanwhile, Trump is furious that major competitors are lowering interest rates, while the Fed is keeping them unchanged.
💱 The EUR/USD lost the 1.04 level a few hours ago, but quickly regained it. However, a bearish figure is forming which, together with the upcoming inflation data, could push this pair back towards the 1.0250 level.
📉 In Europe, fantasy and dreams seem to continue to dominate. DAX 40 futures almost touched 21,900 points, oblivious to the political crisis affecting the country. DAX 40 futures are currently trading at 21,870 points.
🛢️ Crude oil prices are showing a slight recovery after yesterday’s falls, with Brent crude oil prices rising above 76 dollars a barrel. However, there are already signs of a pause in prices, indicating the formation of another declining high. This suggests that the downtrend could continue in the near term.
🏆 Spectacular performance by gold futures, which last night approached $2,900 per ounce, reaching a high of $2,860. They have now fallen back slightly to $2,850.
💱 Lastly, bitcoin broke above $106,000 yesterday, but has fallen back to $104,450. The formation of a sideways range between its all-time highs and $98,000 is starting to become evident.
🇩🇪 Geopolitics:
🇩🇪 Germany’s political breakdown continues. Former German Chancellor Angela Merkel has weighed into the country’s contentious election campaign, criticizing fellow Christian Democrat Friedrich Merz over his decision to force through a hard-line immigration resolution in parliament with votes from the far-right AfD party. In a rare direct intervention in politics since her term ended in 2021, Merkel published an open letter saying Merz should have stuck by a proposal that would have prevented any parliamentary majority that required the backing of the anti-immigrant AfD. Merz justified his effort to overhaul migration policy by citing a recent fatal knife attack in Bavaria, allegedly perpetrated by a rejected asylum seeker, as proof that radical action is needed.
🇺🇦 Ukrainian Christian communities call on US Vice President Vance to protect them in a viral video. The Ukrainian government considers the IOU Ukrainian Orthodox Church to be linked to the Moscow Patriarchate, which has led to the storming and closure of some churches.
🌍 Ukraine’s debt to the World Bank has risen by 65% in 2024, reaching $22 billion, according to Forbes Ukraine. The World Bank is Ukraine’s second-largest foreign creditor, while the European Union remains the top lender, with Ukraine’s debt to the EU increasing by 34% to $44 billion in the past year.
