Rise and shine everyone
We have the ECB rate decision scheduled for 8:15 am ET today. Expectations are for a 25-bp cut. While they will quite likely go ahead with the cut, the follow-up press conference should be interesting.
The ECB has been calling for fiscal consolidation over the past two years, and we expected to see some of that this year. Instead, yesterday we got news of larger defense spending and possibly fiscal exuberance.
In general, fiscal spending introduces money into the economy, leading to increased spending, higher prices and therefore, inflation. Exactly the opposite of what the ECB wants at this stage, when they’ve just about started getting inflation under control and have cut rates significantly in the past few meetings. This makes the ECB’s job of staying on an easing path much more challenging.
German yields responded yesterday with one of the largest one-day spikes in 30 years and continue to climb today.
There’s been a lot of developing news on tariffs. As of yesterday, we know that US automakers have been exempted from tariffs. And in other news, Walmart is trying to negotiate with suppliers to push the pricing back on them… just as we discussed last week! See out post on tariffs and stock picks here.
More on China this morning… Alibaba is surging, after they released an AI model called Manus, which apparently will compete with the latest model from OpenAI.
This will likely weigh on the Mag 7 today so something to keep an eye on. US Equity Futures are trading lower today, after the S&P 500 had a good day yesterday, bouncing off the 200-day moving average. The yield curve is steepening again, with the long end higher. The USD is still under pressure.
Chart of the Day - Ag prices
One more thing we’re watching is ag prices. We know that China announced reciprocal tariffs on US ag products, and even halted imports from 3 major companies - CHS Inc., Louis Dreyfus Company Grains Merchandising LLC, and EGT LLC. This is weighing on the price of Soybeans, and other ag products as well. China accounts for 20% of US Soybean demand, and this certainly doesn’t bode well for farmers, who are waiting for an update on the release of USDA funds.
What We’re Watching
The ECB press conference. I have a feeling it will be spicy!
Calendars
(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)
