13/02/2025 Daily Reports
European Stocks Trim Gains as Ukraine Peace Talks Boost Optimism Amid Mixed Earnings
- European equities pared gains amid mixed corporate earnings while investors remained cautiously optimistic about emerging US-Russia peace talks that could help end the Ukraine war.
- Gains by Nestlé and Siemens were offset by weakness in Unilever and Barclays, leaving the Stoxx 600 relatively muted.
- Oil prices fell on speculation that easing risks to Russian supply may occur, and Ukraine dollar bonds rose among emerging-market peers.
- The euro strengthened and the dollar weakened, reflecting improved sentiment following President Trump’s recent agreement with Putin to initiate peace negotiations.
- Meanwhile, favorable UK GDP data and solid performance in parts of Asia contributed to the overall positive tone, even as uncertainties around tariffs and inflation persist.
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Markets Cautious as Inflation and Tariffs Take Center Stage
- U.S. stock futures remained subdued on Thursday following an inflation shock, as investors awaited the producer price index (PPI) report for further clues on the Federal Reserve’s interest rate strategy. The consumer price index (CPI) reading on Wednesday showed the sharpest increase in nearly 18 months, reinforcing expectations that the Fed will delay rate cuts
- President Donald Trump added to market uncertainty by announcing plans for reciprocal tariffs, while also distancing his administration from the latest inflation surge. Fed Chair Jerome Powell, in his congressional testimony, reiterated that the fight against inflation is ongoing, with traders now expecting only one rate cut this year, likely in September
- Meanwhile, Trump claimed both Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy expressed interest in peace talks during separate conversations with him, injecting some optimism into global markets.
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Oil Prices Continue to Fall as Trump and Putin Talks Raise Hopes
- Oil prices continued to fall after US President Donald Trump and Russian President Vladimir Putin agreed to talks on ending the Ukraine war, raising hopes that Russian supply risks may ease. Brent crude dropped below $75 per barrel, following a 2.4% decline on Wednesday. Trump announced that negotiations would begin immediately and he would likely meet Putin in Saudi Arabia soon. OPEC warned that Trump’s trade policies could increase market volatility, creating supply-demand imbalances. OPEC’s report also highlighted that some members are improving their implementation of supply cuts. The International Energy Agency is set to release a market outlook later Thursday.
Dollar Bounces Back as Safe-Haven Demand Increases
- US President Donald Trump announced that reciprocal tariffs are coming today, fueling concerns over inflation and weighing on market sentiment.
- Safe-haven assets like the Swiss franc and Japanese yen gained as investors turned cautious.
Euro Gains on Hopes for a Russia-Ukraine Truce
- Trump and Russian President Vladimir Putin agreed to negotiate an end to the war, boosting optimism in European markets.
- The euro jumped 0.6% to $1.0440 before settling around $1.0400, extending its three-day winning streak.
Traders Adjust Positions in the Options Market
- Euro sentiment flipped from negative to neutral, with traders betting on further gains.
- Short-term US dollar sentiment hit its lowest in over a month due to rising peace hopes and ECB rate-cut expectations.
US-EU Rate Divergence and Bond Market Outlook
- The ECB is pressing ahead with rate cuts, while the Fed remains cautious, limiting the euro’s short-term upside.
- Morgan Stanley sees potential for 10-year bond yield convergence, which could push the euro to $1.08.
FX Market Volatility Driven by Euro Strength
- The dollar’s early losses were triggered by a wave of euro buying, leading to stop-loss triggers in USD/CNH and other pairs.
- The shift also had a risk-on element, influencing broader market moves.
What’s Next?
- While hopes for a Russia-Ukraine truce have strengthened the euro, uncertainty around US tariffs and inflation risks could limit further gains.
- The divergence between Fed and ECB policies remains a key factor for currency movements in the coming months.
- Investors should stay cautious, as market sentiment can shift quickly based on political and economic developments.
