Money Talks Report 13/03/2025.

?? Market Report.

?? US inflation provided some relief to the market situation. In the midst of a trade war, at least inflation does not seem to be a problem, which would make it easier for the Fed's stimuli to make things worse. Both the headline and core inflation rates were lower than expected and below the results of the previous period, at an annualised rate of 2.8% and 3.1% respectively.

?? President Trump threatened to escalate a global trade war by imposing further tariffs on European Union goods if the EU follows through with its plan to enact counter-tariffs on some U.S. goods next month. The EU's counter-measures would target up to $28 billion worth of U.S. goods, which the Kiel Institute says is only a "small fraction" of the EU-U.S. commercial relationship. U.S. allies like Britain and Australia criticized the blanket tariffs, but ruled out immediate tit-for-tat duties. Brazil, the No. 2 provider of steel to the U.S., said it would not immediately retaliate.

?? Retail giants Walmart and Delta airlines have warned that their profitability will be impacted by the exceptionally high level of economic uncertainty.

??? Britain had hoped to avoid tariffs on its small but specialized steel sector, which produces goods for defense and other industries. Trump had suggested a bilateral trade deal could avert the duties. The British government had argued its provision of key goods for the U.S. defense, oil and gas, and construction sectors meant it should be given an exemption from the tariffs. The head of the British steel trade body, UK Steel, questioned whether Trump realized Britain was an "ally, not a foe", and said the British steel sector is not a threat to the U.S. but rather a partner. Steel exports to the U.S. account for 9% of UK steel exports by value and 7% by volume, making the U.S. Britain's second most important export market after the EU.

?? This could explain the exceptional strength of the GBPUSD pair over other twin pairs, such as the EURUSD over the last few weeks.

?? Trump said he would have imposed a 200% tariff on Ireland to stop the pharmaceutical corporations from relocating there. However, Ireland is especially exposed to trade risks because it is home to important technology and pharmaceutical companies.

?? Bridgewater founder Ray Dalio warned that the U.S. faces a "very severe supply-demand problem" regarding its debt, which will require the White House to sell a quantity of debt that the world is just not going to want to buy. The U.S. deficit needs to go from a projected 7.2% of GDP down to around 3%. According to the Congressional Budget Office, annual budget deficits are projected to average 6.1% of GDP through 2035, significantly higher than the 50-year average of 3.8%, with national debt potentially rising by nearly $24 trillion over the next decade. Dalio suggested the debt problem could result in a restructuring of the debt, the U.S. applying pressure on other countries to buy the debt, or even cutting off payments to some creditor countries.

?? Volkswagen ready to convert factories to arms production. German defence giant Rheinmetall says it could take over Volkswagen's idle factories and use them to produce tanks. This is similar to the steps leading up to World War II.

???? German election-winner Friedrich Merz has announced plans for hundreds of billions of euros in infrastructure spending and a buildup of the German military, which will be debated in the Bundestag this week. Merz's bold moves have been cheered by investors, with the prospect of more German debt and a stronger economy sending the euro and European stocks surging. However, Merz faces challenges in getting his proposals through the fragmented German parliament, where he needs a two-thirds majority to change the constitution. Germany's economy is in urgent need of repair, with its manufacturing sector struggling and companies facing issues like excessive bureaucracy, high energy costs, and worker shortages. The public in Germany is increasingly skeptical of the U.S. as a dependable ally, with 82% of respondents saying they no longer see the U.S. as a reliable partner.

?? President Trump's easing of sanctions and potential peace deal between Russia and Ukraine are attracting investors and businesses looking to re-enter the Russian market. Russia was once a major hub for international investment, with billions of dollars flowing into the country. However, the heavy sanctions imposed after the 2022 invasion led to a mass exodus of Western companies and disrupted Russia's economic ties with Europe. The prospect of eased or removed sanctions has sparked interest in underpriced Russian assets, but significant reputational risks remain, including concerns about the durability of a peace deal and the possibility of sanctions being reimposed if hostilities resume.

?? An investigation has revealed that five groups funded by ActBlue, including Disruption Project, Rise & Resist, Indivisible Project and Democratic Socialists of America, are behind the protests against Tesla. ActBlue, whose donors include figures such as George Soros and Reid Hoffman, is facing investigations into alleged foreign and illegal donations. The controversy intensified after the resignation of seven senior officials from the organisation this week. Elon Musk has publicly asked for more information on the subject.

?? Market View:

?? US markets were volatile yesterday, especially after the publication of inflation data that initially pointed to relief in inflationary pressure and could have boosted the markets. However, this positive news was not enough.

?? S&P 500 futures managed to rise more than 1% during the session, but later fell back to previous levels and currently stand at 5575 points. Meanwhile, Nasdaq futures followed a similar pattern: after rebounding to around 19,800 points, they fell again and are now at 19,470 points.

?? The dollar index (DXY) showed little reaction to the inflation data, remaining around 103.65 points. As a result, the EUR/USD pair did not register significant movements either. After briefly exceeding the 1.09 level, it is currently holding at 1.0875.

?? The reaction of US bonds has also been unexpected. Although inflationary relief could have favoured a continuation of the Fed's rate cuts, the yield on the 2-year bond has risen, returning to the 4% zone in the last few hours, which would indicate that fixed income operators are not clear about the rate cuts.

???? In Europe, the markets remain relatively stable. The DAX 40 is at 22,620 points, gaining almost 400 points from Tuesday's levels, when it approached 22,250 points. The spread between US and European equities continues to widen, opening up interesting opportunities for bidirectional spread strategies.

??? As for crude oil, the price of a barrel of Brent has recovered and is rising towards $71.

?? Gold has also recovered, reaching $2,955 per ounce before falling slightly to $2,945.

?? Finally, Bitcoin continues its recovery, albeit with some caution. It is currently approaching $84,000, facing key resistances such as the 55 exponential average on intraday charts, with candlesticks reflecting indecision in the market.