Morning Brew March 6 2025

ood morning,

President Trump's impulsive actions in the trade war are astonishing the markets, while German long-term yields have risen the most significantly since the collapse of LTCM in 1998. In a recent announcement, Donald Trump stated that USMCA-compliant vehicles would be exempt from tariffs. Consequently, the Dow increased by 1.14%, the S&P 500 by 1.12%, and the Nasdaq by 1.46%. Carmaker stocks surged, with Ford climbing 5.8% and General Motors 7.2%, while Tesla gained 2.6%. In normal trading volumes, four of the 40 DAX companies rose more than 10% yesterday, with Heidelberger Materials leading at a remarkable 17%. Deutsche Bank and Commerzbank followed with gains of 12% and 11%, respectively.

US 10-year yields are currently higher than yesterday at 4.32%, yet this has not bolstered the USD, as EU 10-year yields have surged to 2.8% and the Gilt to 4.70%. The substantial defence and infrastructure spending, alongside Germany's relaxation of fiscal constraints, are the driving factors. Today's press conference by Mme Lagarde will be of particular interest.

The EUR/USD has reached its highest level since the US election, breaching 1.08, while GBP/USD stands at 1.29 and USD/JPY at 148.80. Gold and silver have risen to 2920 and 32.60, respectively, and copper has surged to $4.80 per pound following President Trump's announcement of tariffs on copper imports. Bitcoin has climbed above 92k.

Regarding the ECB decision, a rate cut today is almost certain, with a 97% probability priced in. By year-end, rate traders anticipate one and a half more cuts, bringing rates to 65 basis points below the current level. From China, we expect a substantial stimulus package that will drive the budget deficit to 4%.

Expect a high degree of market uncertainty as we navigate a significant paradigm shift: 75 years of transatlantic cooperation appear to be waning, with Europe bolstering its defence capabilities and Germany willing to increase spending. Predicting the key driver in this environment is exceedingly challenging.

Ensure you have a strategy to navigate these turbulent times. A simple savings plan with cost averaging may suffice, but if you are actively trading, maintain strict risk management. Stop losses, though sometimes frustrating in short-term moves, protect against significant losses. Options may offer an alternative strategy. If you have any questions, please feel free to get in touch.