Negative economic surprises, Trump and DOGE cause US rates to fall

Current market commentary

The lack of an escalation in the trade war so far, weaker US economic data and a decline in momentum for Treasuries led to a fall in yields on US government bonds. At the same time, there was incremental positive news for Europe with the more likely peace in Ukraine and the German parliamentary elections. This and the need for increased European defence spending has led to a narrowing of the interest rate differential between the US and Europe and has tended to weigh on the US dollar. The probability of a (slight) economic slowdown in the US has increased recently in any case, favoured by the lagging effects of the strong dollar and high US interest rates in December/January, the new US government's austerity measures and increased political uncertainty. The equity market is already playing on this theme: defensive equity market segments have recently performed significantly better than cyclicals and volatility has increased.

Short-term outlook

Things will be a little quieter over the next two weeks. Following the general election in Germany, coalition negotiations are now on the agenda, which are once again eagerly awaited. The ECB meets on Thursday, 6 March and is expected to cut interest rates by 25 basis points.

The week begins today with the preliminary consumer price index (Feb.) for the eurozone and the purchasing managers' index for the manufacturing sector (Feb.) for the USA. This will be followed on Wednesday by the ADP labour market report and the services purchasing managers' index (Feb.) for the US, retail sales (Jan.) for the eurozone on Thursday and non-farm payrolls (Feb.) and the unemployment rate (Feb.) for the US on Friday. Next week will see the publication of consumer prices (Feb.) for Germany and the USA as well as the monthly sentiment survey by the University of Michigan (Mar.).