Articles

This week Deutsche Bank shifted its view on the euro in a shift to neutral. It’s been a nice ride down to 1.0480 from 1.09 at this time last year but they are seeing changes in the political winds on both sides of the trade.

• The three German centrist parties are likely to opt into a very large new defence fund that bypasses the German
  debt break
• They view that as a sign German fiscal capacity will be used
• They also see this as a pathway to stability and peace in Ukraine
• A more conservative fiscal policy from the US administration that’s led to a decline in Treasury yields

“We see the balance of risks as evenly distributed over the next few
months, with downside risks emanating from additional disruption from
trade policy/tariffs (and by extension a more dovish ECB stance), but
upside risks emanating from a more pro-active German fiscal stance and a
more positive resolution to the Russia – Ukraine crisis”

Notably, they said this view could shift in the coming weeks depending on what happens with defense spending. Since the note, Merz did say it would take some time to alter the fiscal brake and he called it ‘complex’.

As for a broader weakening of the US dollar, they don’t have that view yet but are watching for signs of more Fed easing.

This article was written by Adam Button at www.forexlive.com.

Goldman Sachs analyzes the impact of anticipated Japanese repatriation flows, particularly from major institutions like GPIF and financial firms shifting allocations away from foreign bonds. While expectations lean toward a domestic stock and bond reallocation, there is little evidence yet of substantial foreign bond repatriation, making JPY strength potentially premature.

Key Insights:

1️⃣ Major Institutional Shifts 📊

• A large Japanese financial institution plans to reduce exposure to foreign bonds after consecutive losses.
• GPIF’s five-year portfolio review (expected by March-end) could reverse previous shifts into foreign bonds, favoring domestic stocks and possibly JGBs.

2️⃣ Market Expectations vs. Reality ⚖️

• Markets expect repatriation flows into domestic assets, strengthening JPY.
• However, weekly data show no clear evidence of significant foreign bond selling yet.

3️⃣ Trading Implications 💡

• If repatriation flows materialize, JPY strength could be more persistent.
• If flows fail to emerge, Goldman sees an opportunity to position for a tactical reversal, meaning JPY could weaken again.

Conclusion:

Goldman acknowledges the case for JPY strength from anticipated repatriation flows but sees no concrete signs yet. If flows do not accelerate, the bank prefers positioning for a tactical JPY reversal rather than chasing further upside.

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This article was written by Adam Button at www.forexlive.com.

President Biden gave Venezuela something of an olive branch in an effort to get free elections but it hasn’t gone to plan and now Trump says he’s ending it. He also cited that Venezuela isn’t taking back illegal immigrants.

The deal had eased sanctions on oil, gas and gold but a portion of that had already been reversed in April 2024 after opposition candidate María Corina Machado was barred from participating in the presidential elections.

Trump’s post:

We are hereby reversing the concessions that Crooked Joe Biden gave to
Nicolás Maduro, of Venezuela, on the oil transaction agreement, dated
November 26, 2022, and also having to do with Electoral conditions
within Venezuela, which have not been met by the Maduro regime.
Additionally, the regime has not been transporting the violent criminals
that they sent into our Country (the Good Ole’ U.S.A.) back to
Venezuela at the rapid pace that they had agreed to. I am therefore
ordering that the ineffective and unmet Biden “Concession Agreement” be
terminated as of the March 1st option to renew. Thank you for your
attention to this matter!

Oil initially rose on the announcement though it’s quickly given that back.

This article was written by Adam Button at www.forexlive.com.

US stocks were flying higher earlier today after Congress took a step towards passing a massive corporate tax cut but that’s quickly turned around with the Nasdaq and S&P 500 now both flat.

The drop may reflect high anxiety about Nvidia earnings today but it’s hard to pin it on that given that shares of NVDA are up 2.6% today.

The turn appeared to come after Trump’s cabinet press conference.

Here is how Josh Wingrove at Bloomberg describes it:

The latest on Trump’s tariff plans depends on how you read what he said today.

He said the US is about to announce a 25% tariff on the EU, but may have been referring to sectoral tariffs on autos, which he pivoted to.

And he signaled the Canada and Mexico tariffs poised to take effect next week may get delayed and rolled into a broader April 2 action — but then demurred, and also said it’s going to be tough to convince him to extend next week’s deadline. Markets interpreted it as a delay in those tariffs.

Broadly, he continues to sing the virtues of tariffs, crediting them among other things with leading to Apple’s latest US investment pledge.

In general, I thought Trump offered more good than bad news but he’s been chaotic and the market is losing its appetite for the rollercoaster.

The bond market especially appears to have had enough with rate cut pricing for this year up to 57 bps from 40 bps two weeks ago. The implied odds of a June cut are up to 83% from 45% a week ago. Further out, a strong bid in Treasuries continues including in all this week’s auctions.

This article was written by Adam Button at www.forexlive.com.

Once again, the bluff has been called.

Earlier this week, Trump said the tariffs on Canada and Mexico would go ahead and now he has pushed them back another month.

The tell was yesterday when Mexico’s Cheinbaum didn’t sound the least bit concerned.

Trump made the announcement about 45 minutes ago in the Oval Office following his cabinet meeting. The White House has still floated 25% reciprocal tariffs but those aren’t real risks to Canada and Mexico as the vast majority of trade is already tariff free.

In any case, it was always a bluff and the limited market reaction (USD/CAD down 30 pips) shows that they aren’t being taken overly seriously.

There was also some contraction in what Trump said. He was asked about the tariffs and first said they’re going ahead.

“I’m not stopping the tariffs,” Trump said while lamenting mistreatment by Canada and Mexico. Later though, he said the tariffs would be implemented April 2.

The April 2 date is also the date the White House has floated for reciprocal tariffs.

Another contradiction was around fentanyl with Trump saying conditions to lift the tariffs were “going to be hard to satisfy” in time for next week’s tariffs.

More here.

This article was written by Adam Button at www.forexlive.com.

• Prior was 4.457%
• Bid to cover vs 2.64 prior

This is the final Treasury auction of the week and the month. The yield is nicely below last months sale (by about a quarter point) following the broad rally in the bond market.

This article was written by Adam Button at www.forexlive.com.

Trump is talking about DOGE, tariffs and the usual stuff in the Oval office. There isn’t anything market moving in what he’s said already but he said this on China:

• We’re going to get along very well with China
• China is a competitor

US descriptions of China range from “competitor” to “adversary” to “enemy”.

There is a very important distinction here, especially from the Chinese side. Biden sometimes referred to China as an ‘adversary’ and that’s irked Beijing, who has tried to steer the relationship back towards ‘competitor’ or better.

Two years ago, Chinese President Xi said the US and China can only be adversaries or partners, with no middle ground.

“The number one question for us is: are we adversaries, or partners? This is the fundamental and overarching issue,” he said in San Francisco in 2023.

Now ‘competitor’ isn’t exactly ‘partner’ and Trump doesn’t always choose his words carefully but all his actions since winning the election have been much less antagonistic to China than his comments in the election.

Adding to that, Trump said he won’t comment on whether China should take Taiwan by force and that they want China to invest in the US.

There is a risk of over-interpreting here but we certainly don’t have the 60% China tariffs on Day 1 that Trump promised.

This article was written by Adam Button at www.forexlive.com.

• Wants a balanced budget in reasonably short period of time, maybe by the next year or year after.
• Says going to get along with China, but calls CHina a competitor.
• Selling Gold Card for immigration to pay down debt. Selling gold card for $5M to attract top workers.

This article was written by Greg Michalowski at www.forexlive.com.

Comments from Mimura:

• Don’t see any disparity between recent yen moves and recent positive GDP and domestic inflation data
• Understand BOJ has been sending messages on monetary policy outlook taking into account strong economic data and headline inflation figures
• Import prices are also rising due in part to FX factors

USD/JPY has been volatile but has recently trended lower to 149 from 158.

This article was written by Adam Button at www.forexlive.com.

• Prior was +4633K
• Gasoline +369K vs -849K exp
• Distillates +3908K vs -1488K exp

The crude draw is good news for the beaten-up oil market but the products numbers are bearish. Higher refinery runs were looking to capture a tighter diesel and fuel oil market.

Private data from late yesterday:

• Crude -640K
• Gasoline +537K
• Distillates -1109K

This article was written by Adam Button at www.forexlive.com.

At this time yesterday, it looked like House Speaker Johnson would have to pull the bill to extend Trump tax cuts but with some major arm twisting late yesterday, it got through by the narrowest of margins.

That’s a good sign that the votes will eventually be there to pass the tax cut and that’s reflected in the strength in the stock market today.

It will still be a long path to write and pass the full bill, and Politico outlines the process today.

The S&P 500 is up 0.6%, the Nasdaq up 0.8% and the Russell 2000 up 1.2%.

This article was written by Adam Button at www.forexlive.com.

At this time yesterday, it looked like House Speaker Johnson would have to pull the bill to extend Trump tax cuts but with some major arm twisting late yesterday, it got through by the narrowest of margins.

That’s a good sign that the votes will eventually be there to pass the tax cut and that’s reflected in the strength in the stock market today.

It will still be a long path to write and pass the full bill, and Politico outlines the process today.

The S&P 500 is up 0.6%, the Nasdaq up 0.8% and the Russell 2000 up 1.2%.

This article was written by Adam Button at www.forexlive.com.