Shares cling to hopes for tariff relief, bitcoin jumps

British Pound

Reuters: The pound eased on Friday as nervy investors flocked to the dollar in light of growing pessimism over the outlook for the U.S. economy as President Donald Trump's tariffs are about to come into force. That said, sterling was still heading for its first monthly rise since September, driven less by optimism over the UK economy and more by the prospect of UK rates taking longer to fall than those elsewhere. Sterling was down 0.2% on the day at $1.259, having risen 1.6% in February, the most in a month since September's 1.9% gain.

Traders expect both the Federal Reserve and the Bank of England to deliver around two rate cuts this year, with a growing chance of a third. They currently believe U.S. rates will end the year at 3.73%, compared with 3.8% in Britain, according to the interest-rate futures market. The difference is starker with the European Central Bank, which is expected to cut euro zone rates at least three more times before the year is out, which would leave rates below 2%. The euro has also been under broader pressure after Trump threatened to apply a 25% tariff to European Union exports of cars and other goods.

The possibility of U.S. duties on EU goods, in addition to those on Mexico, Canada and China, has been on the cards for some time, but now appears to be closer. This week, the euro has fallen to its weakest against the pound since mid-December, having lost over 2.5% since Trump took office on January 20. On Friday, it was roughly flat on the day at 82.56 pence. British Prime Minister Keir Starmer visited Trump in Washington for the first time on Thursday to discuss a range of topics, including peace in Ukraine, as well as European spending on defence and tariffs.

The UK is less exposed to the risk of tariffs than the EU, given that it boasts a trade surplus with the U.S. and most exports are in the form of services. Trump and Starmer said they had discussed a trade deal and the U.S. president suggested Britain could be spared. "Sterling could continue to outperform in the short run, particularly against the euro and riskier currencies, although a lot is already priced in," BBVA strategists said in a note. The next risk event for currencies is the release of the U.S. personal consumption expenditures index, which reflects broad consumer price pressures and could prove key in setting expectations for where U.S. interest rates may head in the first half of the year.

US Dollar

Reuters: Gold prices rose on Monday, helped by a weaker dollar, while a delay in finding peace in Ukraine and concerns over the U.S. tariff policy fuelled safe-haven demand for the metal. Spot gold climbed 0.3% to $2,866.76 an ounce by 0303 GMT. U.S. gold futures rose 1.1% to $2,880.50. The dollar index fell 0.4% from a more than two-week high hit in the previous session, making bullion less expensive for other currency holders. "Today's early Asian bullish tone in gold is likely to be driven by geopolitical risk factors due to the pushback of the anticipated peace deal between Ukraine and Russia," said Kelvin Wong, senior market analyst, Asia Pacific, at OANDA.

Ukrainian President Volodymyr Zelenskiy's meeting with U.S. President Donald Trump ended in disaster on Friday, adding uncertainty to financial markets already jittery due to weakening economic data and volatility around U.S. trade policies. U.S. Commerce Secretary Howard Lutnick said on Sunday that tariffs on Canada and Mexico would come into effect on Tuesday, but Trump would determine whether to stick with the planned 25% level. Trump said he would add another 10% tariff on Chinese goods on Tuesday, effectively doubling 10% duties imposed on February 4.

Data released on Friday showed that U.S. consumer spending unexpectedly fell in January, but a pickup in inflation could provide cover for the Federal Reserve to delay cutting interest rates for some time. Although bullion is considered a hedge against geopolitical uncertainty, it loses its allure in a high interest rate environment. Among other metals, spot platinum shed 0.2% to $945.45 an ounce and palladium added 1% to $928.54. Demand for industrial precious metals platinum and palladium will likely fall if tariffs proposed by the Trump administration on U.S. auto imports dampen vehicle sales, analysts said. Spot silver was up 0.5% at $31.30.

South African Rand

Reuters: South Africa's rand was little changed on Friday, after the release of a key U.S. inflation reading and a flurry of local economic data. At 1415 GMT, the rand traded at 18.465 against the dollar, near its previous close. Trade in the South African currency has been volatile in recent sessions amid local budget disputes and uncertainty over U.S. President Donald Trump's tariff plans. The dollar was last down 0.07% against a basket of currencies. The Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures price index, increased 0.3% in January, in line with economists' prediction, after advancing by an unrevised 0.3% in December.

South Africa recorded a trade deficit of 16.42 billion rand ($889.45 million) in January, revenue service figures showed. The budget deficit came in at 62.68 billion rand in the same month, according to National Treasury data. Central bank data earlier showed South Africa's M3 money supply growth last month was at 7.10%, up from 6.71% in December. Credit growth for January stood at 4.59%, from 3.83% in the previous month. On the Johannesburg Stock Exchange, the blue-chip Top-40 index last traded about 1.1% lower. South Africa's benchmark 2030 government bond was weaker, with the yield up 6 basis points at 9.14%.

Global Markets

Reuters: Asian share markets made guarded gains on Monday as investors waited anxiously to see if imminent tariffs would go ahead, while bitcoin surged on news it would be included in a new U.S. strategic reserve of cryptocurrencies.

U.S. President Donald Trump on social media announced five digital assets he expected to include in a new reserve, including bitcoin, ether, XRP, solana and cardano. Bitcoin, the world's largest cryptocurrency by market value, shot up 10% to $92,905, while ether, the second-largest cryptocurrency, pulled back to $2,443 after climbing 13% over the weekend.

MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.3%, while Japan's Nikkei rose 1.0%. Chinese blue chips added 0.8%, helped by a pick-up in the Caixin/S&P manufacturing PMI to 50.8 in February, from 50.1. S&P 500 futures and Nasdaq futures were both flat, having staged a late rally on Friday after a week of heavy losses. EUROSTOXX 50 futures firmed 0.3%, while FTSE futures and DAX futures rose 0.6%. Investors seemed encouraged that European leaders agreed to draw up a Ukraine peace plan to take to the United States, following President Volodymyr Zelenskiy's clash with Trump in the Oval Office.

Worries about the health of the U.S. economy had also been fanned by a string of soft data that had seen the closely watched Atlanta Fed GDPNow tracker swing to an annualised -1.5%, from +2.3%, sparking talk of a possible recession. Those fears were fanned on Sunday when U.S. Commerce Secretary Howard Lutnick said tariffs on Canada and Mexico will go into effect on Tuesday, but that Trump would determine whether to stick with the planned 25% level. An extra 10% levy on Chinese imports is also due to come into effect this week, just as the country's National People's Congress opens its third annual session on Wednesday where stimulus measures and possible reprisals against the U.S. could be announced.

"As with other Trump tariff announcements so far, it's hard to know if this is a bluff or a genuine turn in policy," said JPMorgan economist Michael Feroli. "However, if it were to be realised it would create a significant new headwind to economic activity, as well as an upside support to consumer prices." All of this raises the stakes for the January U.S. payrolls report due on Friday, where a weak outcome would fuel market bets the Federal Reserve might have to cut interest rates three times this year.

Fed fund futures now imply 69 basis points of easing by December, compared with 46 basis points a week ago. Yields on 10-year Treasuries extended their rally with a drop to 4.220%, leaving them down 35 basis points in February, the largest monthly decline since late 2023. Fed Chair Jerome Powell is due to speak on the economic outlook on Friday, just a few hours after the jobs report, and at least seven other officials will appear this week. Across the Atlantic, the European Central Bank is widely expected to cut its rates by 25 basis points to 2.50% on Thursday following a run of weak data, and a move under 2% is expected by year-end.

In currency markets, the euro edged up 0.5% to $1.0421 on hopes for progress in a Russian-Ukrainian peace deal, having been as low as $1.0360 on Friday. The dollar eased back to 1.4445 Canadian dollars, after rising 1.7% last week, and dipped to 20.4586 Mexican pesos. It eased a touch on the Japanese yen to 150.32 yen, while the dollar index was down slightly at 107.180. Gold prices firmed 0.5% to $2,873 an ounce , having dropped around 3% last week. Oil bounced a little, having slid last week amid speculation the U.S. could ease sanctions on Russian output, while the risk of a global trade war could hit demand for energy. Brent futures rose 76 cents to $73.57 a barrel, while U.S. crude futures added 74 cents to $70.50 per barrel.

Read more here