China Says 'Doing Its Best' to Push for Tariff Negotiations with EU

Economic

Summary:

China has been "doing its best" to push for negotiations with the European Union over its tariffs on Chinese-made electric vehicles, a commerce ministry spokesperson said on Thursday, almost four months after the punitive import curbs took effect.

The bloc voted to increase the tariffs to as much as 45.3% in October after the European Commission — which oversees EU trade policy — launched an anti-subsidy probe into whether Chinese firms benefited from preferential grants and financing as well as land, batteries and raw materials at below market prices.

"China has been doing its best to push for negotiations with the EU," He Yadong said. "It is hoped that the EU will take notice of the call from industry and promote bilateral investment cooperation through dialogue and consultation."

China launched its own probes last year into imports of EU brandy, dairy and pork products.

He told reporters China's anti-dumping probe into Europe's pork products and anti-subsidy investigation into the 27-strong bloc's dairy trade were still ongoing, when asked how the cases were progressing.

"We will conduct the investigation in an open and transparent manner in accordance with Chinese laws and regulations and World Trade Organization rules," he added.

China's commerce ministry in December decided to extend its anti-dumping investigation into EU brandy imports by three months to April 5.

Source: Theedgemarkets

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Warren Takunda

Economic

"We are getting closer to the point where we may have to pause or halt our rate cuts," prominent ECB board member Isabel Schnabel told the Financial Times midweek.

The comments caused a readjustment in market expectations as forward curves now show that the ECB has less than three interest rate cuts left in the year.

As of November, the pricing was far more generous, with the market priced for as many as five cuts this year.

"Her comments have opened up the debate in the long run-up to the March meeting. We expect the rate cut then to be followed by a pause at least through April, ending the back-to-back sequence since September," says Mathias Van der Jeugt, an economist at KBC Bank.

The readjustment in expectations coincides with a recovery by the Euro against the Dollar through much of January and into February. The repricing in ECB expectations helped fortify the Euro against the Pound in the midweek session, limiting losses following a strong UK inflation report.

Interest rate expectations feed bond valuations, an important determinant of global capital flows. The Euro stands to appreciate if the Eurozone's rate differential with the likes of the UK and U.S. shrinks.

"ECB executive board member Schnabel is the first to suggest that the direction of travel (of monetary policy) is not so clear anymore," says Mathias Van der Jeugt, an analyst at KBC Bank.

The ECB has cut rates five times since June as policymakers worried about slow eurozone economic growth, but with a trade war on the horizon, concerns about inflation have returned.

Above: Market expectations for the depth of ECB rate cuts have reached a nadir and are climbing again.

Schnabel's comments are the latest in a trend change in ECB communications, in place since December's policy meeting, leading markets to no longer fully 'price in' an April rate cut.

"We need to start that discussion," she said, adding, "we can no longer say with confidence that our monetary policy is still restrictive."

A third ECB rate cut is priced at 88%, meaning there is scope for this to reduce further, providing scope for an additional 'hawkish' adjustment in expectations in favour of the Euro.

"Even though another rate cut is still widely expected at the next meeting in two weeks’ time, there’s now more doubt among investors about whether that’ll be followed up by many more," says Henry Allen, a macro strategist at Deutsche Bank.

Source: Poundsterlinglive

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Alex

Economic

The euro is looking soft on the crosses and a new theme may be coming into play on the back of geopolitical developments. US isolationism means that Europe is going to have to ramp up defence spending sharply. The question is: who's going to pay for it? Will spending be undertaken at the European supranational level? Or will a failure to reach any collective agreement put pressure back on local and national budgets, ING’s FX analysts Chris Turner notes.

EUR/USD to stall in the 1.0450/70 area and can drop to 1.0350

"Italy could be in focus here with perhaps one of the greatest needs to increase defence spending but a debt-to-GDP ratio already close to 140%. Our rates strategy team feels that the recent narrowing in Italian-German sovereign bond spreads could well reverse as it dawns on investors that national governments will be paying the defence bill."

"Some of these trends started to show through in financial markets yesterday, where European debt really started to underperform. We are seeing a bearish steepening of European bond curves, where the German 2-10-year Bund curve, now at 38bp, has steepened to the highest levels since October 2022. We are wary that the theme of increased government bond supply can pressure peripheral spreads and demand a new fiscal risk premium of the euro."

"This comes at a time when there is not much trade risk premium priced into EUR/USD either. As above, there do not seem any immediate signs that the US consumer is about to crumble or that the Fed is about to pull the trigger on another rate cut. Overall we have a slight preference that EUR/USD stalls in the 1.0450/70 area and could drop to 1.0350 should we start to see Italian longer-dated government bonds coming under pressure."

Source: FXSTREET

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Owen Li

Economic

EUR/USD has remained rangebound this week, trading with a slight downward bias within the 1.04-1.05 range, as FX markets largely shrugged off Trump's latest tariff threats after he proposed 25% tariffs on autos, chips, and pharma imports , Danske Bank's FX analyst Mohamad Al-Saraf reports.

Weekly jobless claims are on the agenda

"The January FOMC meeting minutes indicated that as long as the economy remains near full employment, policymakers would need to see further tangible progress on inflation before considering rate cuts. Market reaction was muted, though front-end yields edged slightly lower."

"Today is expected to be another quiet session, with only weekly jobless claims on the agenda. Market focus will shift to tomorrow's PMI releases from the US and euro area, where it will be key to see if momentum builds following January's surprisingly strong euro area PMIs."

"Germany's elections this weekend could gain traction, particularly if a CDU/CSU-led coalition is formed, potentially signalling a shift in fiscal policy that could support Germany's weak growth outlook and, in turn, the EUR. We continue to expect EUR/USD to consolidate around current levels in the near term while maintaining our strategically bearish outlook."

Source: FXSTREET

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Justin

Economic

Bond

The US Dollar Index loses ground as yields on US Treasury notes extend their losses.

Trump has confirmed plans to impose a 25% tariff on imports of automobiles, semiconductors, and pharmaceutical products.

The latest FOMC Meeting Minutes emphasized needing more time to assess multiple factors before considering any rate adjustments.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, depreciates after registering gains for the last two successive days amid falling Treasury yields. The DXY hovers around 107.00. with 2- and 10-year yields on US Treasury bonds standing at 4.26% and 4.52%, respectively, during the European hours on Thursday.

Market participants are now focused on key US economic data, including weekly Initial Jobless Claims, the CB Leading Economic Index, and the Philly Fed Manufacturing Index, set to be released during the North American session.

However, the US Dollar gained ground as risk aversion rose due to concerns over the latest tariffs from US President Donald Trump, who has confirmed that a 25% tariff on pharmaceutical, semiconductor, and auto imports will take effect in April.

The US Dollar may appreciate as the cautious tone rises following the Federal Open Market Committee (FOMC) Minutes from January’s policy meeting. Federal Reserve (Fed) policymakers reaffirmed the decision to keep interest rates unchanged in January. They also emphasized the need for more time to assess economic activity, labor market trends, and inflation before considering any rate adjustments. The committee also agreed that clear signs of declining inflation are necessary before implementing rate cuts.

Markets are pricing in one rate cut for the federal funds rate in 2025, with the potential for a second. Fed Vice Chairman Philip Jefferson stated late Wednesday that the US central bank has time to assess its next interest rate move, citing a resilient economy and persistent inflation. Meanwhile, Chicago Fed President Austan Goolsbee acknowledged that while inflation has eased, it remains elevated, emphasizing that rate cuts would be considered once inflation reaches a more acceptable level, according to Reuters.

Source: FXSTREET

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Owen Li

Data Interpretation

On February 20, Destatis published the PPI report for January 2025, revealing the following key data:

The YoY PPI rate for January was 0.5%, below the expected 1.3% and down from the previous month's 0.8%.

The MoM PPI rate for January was -0.1%, compared to the expected 0.6% and unchanged from the previous month's -0.1%.

Breaking down the components, energy prices in January 2025 fell by 1.0% from the same month a year earlier. Compared with December 2024, energy prices dropped by 0.9%. Lower electricity prices had the biggest influence on the year-on-year rate of change for energy. By contrast, mineral oil products cost more than in the same month a year earlier; their prices rose by 0.7% from January 2024 and by 4.4% from December 2024. Heating oil prices increased by 1.9% from a year earlier (+10.1% compared with December 2024). Motor fuel prices were up 0.5% (+5.6% from December 2024). When energy prices are excluded, producer prices in January 2025 rose by 1.2% on the same month of the previous year and by 0.3% compared with December 2024.

Non-durable consumer goods cost 3.0% more in January 2025 than in January 2024 (+0.5% on December 2024). Food prices were up 3.5% on January 2024. Compared with the same month of the previous year, butter prices were much higher (+39.8%; -0.3% on December 2024), and confectionery also cost considerably more (+24.0%; +1.2% on December 2024). Beef was 18.0% more expensive than in January 2024 (+2.3% on December 2024). By contrast, lower prices than in the same month a year earlier were recorded in January 2025 especially for sugar (-33.8%), pork (-8.8%) and cereal flours (-4.1%).

The prices of intermediate goods were 0.1% lower in January 2024 than a year earlier. Compared with the previous month, they remained unchanged (0.0%). Price trends varied across product categories. The prices of glass and glass products were down 4.8% compared with the same month a year earlier. However, the prices of metals were up 0.1% year on year, and wood and products of wood and cork were 2.5% more expensive than in January 2024. Price increases compared with January 2024 were observed for stone, gravel, sand, clay and kaolin (+3.4%), plaster products for construction purposes (+4.6%), electric transformers (+2.3%) and wiring and wiring devices (+1.0%).

Overall, higher prices for non-durable consumer goods were the main reason for the year-on-year increase in producer prices. Capital goods and durable consumer goods were also more expensive than in the same month of the previous year, while energy and intermediate goods were less expensive.

Germany PPI for January

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Warren Takunda

Stocks

Asian shares traded mostly lower Thursday after a quiet day on Wall Street, where the S&P 500 added to its record.

Worries about U.S. President Donald Trump’s tariff policies remain high on regional investors’ minds.

Japan’s benchmark Nikkei 225 dropped 1.2% to finish at 38,678.04. Australia’s S&P/ASX 200 declined 1.2% to 8,322.80, while South Korea’s Kospi lost nearly 0.7% to 2,654.06.

Hong Kong’s Hang Seng dipped 1.3% to 22,640.18, after China left its benchmark interest rate unchanged, in a move it said was meant to maintain financial stability. The Shanghai Composite shed less than 0.1% to 3,349.60.

“The yuan has been under siege, with foreign-exchange outflows surging last month as Trump’s tariff rhetoric sent shockwaves through markets,” said Stephen Innes, managing partner at SPI Asset Management.

On Wall Street, the S&P 500 rose 0.2% after setting an all-time high the day before. The Dow Jones Industrial Average picked up 71 points, or 0.2%, while the Nasdaq composite inched up by 0.1%.

Microsoft was the strongest force pushing the S&P 500 upward. It rose 1.3% after saying it had developed what it calls the world’s first “quantum processing unit,” which could lead to the development of much more powerful computers. While the gain was relatively modest, Microsoft’s gargantuan size gives its stock’s movements huge sway on the S&P 500 and other indexes.

Elon Musk’s Tesla rose 1.8%. It climbed after another electric-vehicle company, Nikola, plunged 39.1% following its filing for Chapter 11 bankruptcy protection. The electric truck maker said it will try to sell off its assets and wind down its business.

A separate report Wednesday said homebuilders as a group broke ground on fewer U.S. houses last month than economists expected.

High mortgage rates are making it difficult for some potential homebuyers to afford a house, even though the Federal Reserve began cutting its main interest rate in September in order to make things easier for the economy.

The yield on the 10-year Treasury eased a bit Wednesday and edged down to 4.53% from 4.55% late Tuesday. It was below 3.70% as recently as September and approaching 4.80% within the past few weeks.

Both the bond and the stock markets have increasingly been taking Trump’s tariffs in stride, after earlier showing much more trepidation. The hope on Wall Street is that Trump is using such threats merely as a tool to drive negotiations, and the ultimate effects won’t be as bad as they initially appeared.

All told, the S&P 500 added 14.57 points to finish at 6,144.15. The Dow Jones Industrial Average rose 71.25 to 44,627.59, and the Nasdaq composite gained 14.99 to 20,056.25.

In energy trading in Asia Thursday, benchmark U.S. crude fell 30 cents to $71.95 a barrel. Brent crude, the international standard, lost 1 cent to $76.03 a barrel.

In currency trading, the U.S. dollar slipped to 150.04 Japanese yen from 151.37 yen. The euro cost $1.0429, inching up from $1.0428.

Source: AP

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China Says 'Doing Its Best' to Push for Tariff Negotiations with EU

Source: Theedgemarkets

The Case for Euro Resilience Builds

Above: Market expectations for the depth of ECB rate cuts have reached a nadir and are climbing again.

Source: Poundsterlinglive

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Source: FXSTREET

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Source: FXSTREET

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Source: FXSTREET

Germany's January PPI Rises Below Expectations, Driven by Non-Durable Consumer Goods

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Source: AP

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