STIR: Dovish Repricing In EUR Rates On Latest US Tariff Developments
Mar-27 07:50
Euribor futures rally as global markets adjust to the latest US tariff developments. Autos will be subject to 25% tariffs from April 2, with auto parts facing an equal levy from May. President Trump has threatened more significant tariffs on the EU if the bloc “works with Canada in order to do economic harm to the USA” (i.e. retaliates). Latest headlines suggesting China has rejected Trump’s offer of tariff concessions in exchange for a TikTok deal has added to the dovish price action.
- Our Asia Pac team highlighted overnight that Europe was the fifth most important source of US car imports, with 18.1% of total imports coming from the EU ex UK and 3.4% from the UK. Within Europe, Germany was the largest source at 10.2%.
- Euribor futures are +4.0 to +7.0 ticks through the blues. ERZ5 is back above 98.000 for the first time since incoming German Chancellor Merz’s fiscal announcement at the start of this month.
- The implied probability of a 25bp ECB cut in April (according to ESTR meeting-dated OIS) has risen to 80%, while 57bps of easing are priced through year-end (vs 54.5bps at yesterday’s close).
- This morning, ECB’s Kazaks noted that the ECB can probably keep cutting if the baseline projections hold. Meanwhile, Wunsch provided a characteristically more hawkish view, noting that a pause in April should be on the table. Wunsch nonetheless suggested a rate hike this year is unlikely.
- February Eurozone lending data is due at 0900GMT, an important input to gauge the restrictiveness of ECB policy.
| Meeting Date | ESTR ECB-Dated OIS (%) | Difference Vs. Current Effective ESTR Rate (bp) |
| Apr-25 | 2.218 | -19.9 |
| Jun-25 | 2.049 | -36.8 |
| Jul-25 | 1.996 | -42.1 |
| Sep-25 | 1.909 | -50.8 |
| Oct-25 | 1.888 | -52.9 |
| Dec-25 | 1.849 | -56.9 |
| Feb-26 | 1.844 | -57.3 |
| Mar-26 | 1.845 | -57.3 |
| Source: MNI/Bloomberg. | ||
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CROSS ASSET: Bitcoin falls over $5000
Feb-25 07:44
- Since Bitcoin has now broken through $89,329.20, the January low, it is now trading at its lowest level since November.
- Next support comes at $88,027.58, the 50% retracement of the US presidential Result (Trump Win), printed a 88,239.23 low, and back up to 89,000 now.
GERMAN DATA: GDP Inline W/ Flash, Inventories Contribute +0.8ppt
Feb-25 07:38
Germany's final Q4'24 GDP growth figures came in in line with the flash release at -0.2% Q/Q (+0.1% Q3).
- Inventories stand out, contributing +0.8% percentage points to the Q/Q print (the same contribution as in Q3). That means excl. inventories, Q/Q GDP growth would have been -1.0% (and -0.7%Q/Q in Q3).
- Other underlying drivers were also released, showing a rise in government expenditure, little moves in private consumption and declining exports. The bigger picture remains that the German economy continues to stall.
- Private consumption +0.1% Q/Q vs +0.4% cons, +0.2% Q3 (revised from +0.3%): A "consumption-driven recovery" was the big hope for the German economy about a year ago - these expectations appear to not really have materialized.
- Government spending +0.4% Q/Q vs +1.5% Q3 (revised from +0.4%, no cons): Talks to allow more military spending in the context of the constitutional debt brake (which currently limits cycle-adjusted net issuance to 0.35% of GDP) are underway - an agreement here would put on upside pressure going forward.
- Capital investment excl. inventories +0.4% Q/Q vs -0.5% cons, -0.5% Q3 (revised from -0.1%): Stronger than expected, driven upward by construction, and the first increase since Q1 2024. This was the most worrying part of the expenditure split in recent quarters - the uptick is good news in theory, but doesn't move the needle massively especially considering machinery / equipment investment was negative again.
- Exports -2.2% Q/Q vs -1.9% Q3 (no cons). This shows a continued absence of robust demand for German goods. Looking forward, there also appears to be little sign of an imminent rebound, as sentiment suggests.
USD: Lower Yields and Risk Off are supporting the Yen
Feb-25 07:35
- As noted in the Bund comment there's very little change intially across multi assets going into the European session.
- The early push lower is Equities, is supporting Core Govies, as Trump look for tougher Chips control over China, Dutch ASML is falling pre Open.
- The Dollar was flat overnight against all G10s, the EUR was the small winner, albeit by just 0.09%, and the NOK was down 0.04%, in a sense, a flat Dollar.
- Since the early Risk Off tone, JPY is now just up 0.11%, and the NOK is still down 0.06%, but the push higher in Bond futures and in turn a dip in Yield is putting pressure on the USDJPY, next support is seen a little further out, down to 148.85 Low Feb 24.
- The Yen is now seeing broader bid on the Risk Off tone.
