ECB President Lagarde: Economic Growth Faces Challenges Amid Rising Global Trade Uncertainty

Remarks of Officials

Summary:

European Central Bank (ECB) President Christine Lagarde highlighted that global economic growth is slowing, with the Euro area facing intensified trade uncertainties, weak domestic demand, and declining corporate investment. Although inflation has receded, the tight labor market and strong wage growth could still push core prices higher. Should the economic slowdown persist, rate cuts could become an option.

Domestic demand remains weak, and corporate investment has slowed. Internal demand in the Euro area is growing sluggishly, with consumer confidence indices remaining low. Corporate investment activities have also cooled down. Data shows that in the fourth quarter of 2024, fixed asset investment in the Euro area increased by only 1.2% YoY, far below the 3.5% growth in 2023. The slowdown in economic growth in the Euro area and major economies is partly due to increased global trade uncertainties, reduced corporate investment intentions, and the impact of geopolitical risks.

Despite a decline in inflation last year, Euro area inflation remains highly volatile, still influenced by the lagged effects of previous price shocks. Given the Euro area's heavy reliance on energy imports, fluctuations in exchange rates and commodity prices could further exacerbate inflationary instability. Currently, the global economy faces two main drivers of inflation: On one hand, ageing and digitalisation that will probably be disinflationary in the coming years. On the other hand, trade fragmentation and higher defence spending in a capacity-constrained sector could in principle push up inflation.

The Euro area labor market remains tight, with unemployment rates at historic lows. Data indicates that wage growth has significantly accelerated over the past year, becoming an important factor influencing the inflation trajectory. Due to the lag in wage adjustments, firms are still gradually absorbing the cost increases from past inflation, which could keep core inflation elevated for an extended period. The strong labor market performance has, to some extent, supported consumer demand. However, if wage growth continues to outpace productivity growth, it could exert additional upward pressure on inflation.

In the current macroeconomic environment, characterized by high uncertainty, central bankers will need to show agility to adjust their stance. Although inflation has recently declined, its future trajectory will depend on the intensity and persistence of external shocks. Market forecasts suggest that if inflation falls to a more manageable level and economic growth continues to weaken, the ECB might consider initiating rate cuts in the second half of the year. Conversely, if wage growth remains strong or external shocks push inflation higher, the central bank could prolong the current interest rate stance.

Lagarde's Speech

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Warren Takunda

Economic

The euro was riding near five-month highs on Wednesday on Ukraine's readiness to accept a month-long ceasefire, while stocks whipsawed on back-and-forth U.S. tariff plans as levies on steel and aluminium imports kicked in.

European equity futures jumped 1.1% and FTSE futures rose 0.5% on news the U.S. would restore military aid and intelligence sharing to Ukraine after Kyiv agreed to accept a U.S. ceasefire proposal.

Russian Foreign Minister Sergei Lavrov said in an interview published on Wednesday, speaking in the context of a possible Ukraine peace deal, that Moscow will avoid compromises that would jeopardise people's lives, Russian agencies reported.

The euro hit its highest since October on Tuesday at $1.0947 and was steady at $1.0913 in Asia trade. Russia's rouble rose to a seven-month high on the previous day.

U.S. steel and aluminium tariffs of 25% took effect on Wednesday - with fairly muted effect on the share prices of Asian steel mills - and drew counter-tariffs from Europe.

MSCI's broadest index of Asia-Pacific shares outside Japan was flat but fragile. Australia's benchmark closed 9.6% below February's record high.

Markets in Hong Kong and China were broadly steady, South Korea and Taiwan bounced and Japan's Nikkei held its ground after slumping to a near six-month low a day earlier.

On Wall Street the S&P 500 had flirted with notching a 10% fall from February's record closing high, and finished a volatile session about 0.8% lower.

President Donald Trump threatened then backed down from a doubling of steel and aluminium tariffs on Canada to 50%, after Ontario suspended plans for a surcharge on exported electricity.

Trading was volatile following conflicting tariff updates that have sparked fears of a potential recession.

The dollar has sunk, Treasuries have rallied and lately stocks have suffered their heaviest selling in months as traders worry tariffs and policy uncertainty will hurt U.S. growth.

"Where we stand now is with a heightened concern about the U.S. economy, not having yet taken our model forecast down, but having put in a roughly 40% recession risk into the outlook for the year," J.P. Morgan chief global economist Bruce Kasman told reporters in Singapore.

"If the U.S. goes into recession, then we enter into a more complicated story, because then you have to recognise that U.S. spillovers to the rest of the world tend to be very large through financial channels."

Investors nervous about the economy punished downbeat financial results from retailers, with Dick's Sporting Goods stock diving 5.7% on a dour outlook and shares plummeting 24% after reporting a drop in sales.

Travel stocks also took a beating after Delta Air Lines cut its profit forecast in half and rivals United and American Airlines warned of deteriorating results, falling government bookings and uncertainty weighing on demand.

Later in the day U.S. inflation data for February is due, though it is likely to be too early to show much of a tariff hit.

A central bank meeting in Canada will be closely watched to see what monetary policymakers on the front line of Trump's trade war are thinking. A seventh consecutive rate cut -- seen as only an even chance two weeks ago -- is priced into the market.

The Canadian dollar hit a one-week low overnight before recovering to C$1.445 per dollar. U.S. equity futures ticked 0.2% higher.

The yen inched down from a five-month high to trade around 148 per dollar. The risk-sensitive Australian dollar was pinned just below 63 U.S. cents and Brent crude futures were held just under $70 a barrel.

Source: Reuters

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Warren Takunda

Stocks

Asian shares were mixed on Wednesday as investors weighed the impact of President Donald Trump’s tariffs after another day of losses on Wall Street.

U.S. futures and oil prices were higher.

Trump’s escalation in his trade war briefly pulled the S&P 500 more than 10% below its record set last month. The head-spinning moves came after Trump upped his tariffs against Canadian steel and aluminum, prompting the Canadian province of Ontario to remove a surcharge that had enraged him.

Japan’s benchmark Nikkei 225 finished little changed, gaining less than 0.1% to 36,819.09.

Hong Kong’s Hang Seng lost 0.9% to 23,566.42, while the Shanghai Composite edged down 0.2% to 3,371.92.

Australia’s S&P/ASX 200 dropped 1.3% to 7,786.20. South Korea’s Kospi added 1.5% to 2,574.82.

On Tuesday, the S&P 500 fell 0.8%, taking the main measure of Wall Street’s health to a close 9.3% below its all-time high.

The Dow Jones Industrial Average lost 1.1% to 41,433.48. The Nasdaq composite slipped 0.2% to 17,436.10.

Such head-spinning moves are becoming routine in what’s been a scary ride for investors as Trump tries to remake the country and world through tariffs and other policies. Stocks have been heaving mostly lower on uncertainty about how much pain Trump is willing for the economy to endure in order to get what he wants.

“Trump’s tariff policies continue to have a destabilizing effect on markets, with investors left guessing as to which measures will either be added or walked back next,” said Tim Waterer, chief market analyst at KCM Trade.

Moves by Trump and comments by the White House on Tuesday didn’t clarify much.

Trump has acknowledged the economy could feel some “disturbance” because of the tariffs he’s pushing. Asked on Tuesday just how much pain Trump would be willing for the economy and stock market to take, White House press secretary Karoline Leavitt declined to give an exact answer. But she said earlier in the press briefing that “the president will look out for Wall Street and for Main Street.”

For his part, Trump said earlier on social media, “The only thing that makes sense is for Canada to become our cherished Fifty First State. This would make all Tariffs, and everything else, totally disappear.”

Stocks pared their losses later in the day, even briefly eliminating them altogether, after Ontario’s premier said he had agreed to remove the surcharge on electricity that had enraged Trump so much. Trump would afterward say that he would “probably” return the steel and aluminum tariffs on Canada to 25%.

Tuesday’s swings followed more warning signals flashing about the economy as Trump’s on -and- off -again rollout of tariffs creates confusion and pessimism for U.S. households and businesses.

Such tariffs can hurt the economy directly by raising prices for U.S. consumers and gumming up global trade. But even if they end up being milder than feared, all the whipsaw moves could leave U.S. companies and consumers unwilling to invest or spend.

Several Big Tech stocks steadied a bit after getting walloped recently. Elon Musk’s Tesla rose 3.8%, for example, after Trump said he would buy a Tesla in a show of support for “Elon’s ‘baby.’”

Other Big Tech superstars, which had led the market to record after record in recent years, also held a bit firmer. Nvidia added 1.7% to trim its loss for the year so far to 19%. It’s struggled as the market’s sell-off has particularly hit stocks seen as getting too expensive in Wall Street’s frenzy around artificial-intelligence technology.

A report released Tuesday morning showed U.S. employers were advertising 7.7 million job openings at the end of January, just as economists expected. It’s the latest signal that the U.S. job market remains relatively solid overall, for now at least, after the economy closed last year running at a healthy pace.

In energy trading, benchmark U.S. crude added 25 cents to $66.55 a barrel. Brent crude, the international standard, rose 26 cents to $69.82 a barrel.

In currency trading, the U.S. dollar rose to 148.62 Japanese yen from 147.78 yen. The euro cost $1.0906, inching down from $1.0919.

Source: AP

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Warren Takunda

Stocks

London stocks rose in early trade on Wednesday following heavy losses in the previous session, but gains were muted as Trump’s tariff chaos rumbled on.

At 0820 GMT, the FTSE 100 was up 0.2% at 8,512.46.

Overnight, US President Trump’s 25% tariffs on steel and aluminium came into effect globally. The European Union responded by saying that it would impose counter tariffs on €26bn of US goods starting next month.

Meanwhile, Trump rowed back on his decision to double tariffs on Canadian steel and aluminium imports to 50%, just hours after making the announcement. This came after the province of Ontario suspended new charges of 25% on electricity that it sends to some northern states in the US.

US tariffs of 25% will still take effect from 12 March, however.

The UK has not followed with retaliatory tariffs but said it was reserving the right to retaliate, with the Business Secretary saying that "all options" are on the table.

Investors were also mulling news that Ukraine has agreed to a US-proposed 30-day ceasefire with Russia.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘"As the ‘Trump bump’ has turned into a slump, investors are bracing for fresh volatility ahead. The impact of tariffs is front of mind, given broad 25% duties on imports of steel and aluminium have come into effect, with the risk of tit-for-tat retaliation high. China has already responded with higher duties on American goods and the EU is planning counter tariffs, which are expected to come into force in April. The disquiet evident among investors on Wall Street, spread to Asia, with the Nikkei flat and Chinese indices in the red.

"London’s FTSE 100 is set for a small rebound, buoyed by hopes for a ceasefire in Ukraine. The easing of geopolitical concerns will help improve sentiment to some extent, but investors will still be mulling the impact of tariffs on global growth and prospects for multinationals in an increasingly complex trading world. UK steel exporters are bracing for harsh winds to blow a storm through the industry, which has already been battered by higher energy costs, weaker demand, and over-supply on world markets."

Looking ahead to the rest of the day, all eyes will be on the latest US inflation reading, with the consumer price index for February due at 1230 GMT.

"Although the CPI headline rate is expected to moderate a little from 3% to 2.9% for February, prices pressures remain high," Streeter said.

In equity markets, Hill & Smith surged as the construction and infrastructure products firm hiked its annual dividend by 14% after seeing underlying profits rise by almost a fifth in 2024.

Hochschild Mining shone as the gold miner hailed its best financial performance for 13 years.

Infrastructure construction specialist Balfour Beatty edged up as it posted an 11% rise in underlying annual earnings and said it would buy back £125m in shares this year.

Financial services group Legal & General fell despite saying it will buy back £500m of shares this year after a strong financial performance in 2024, as part of plans to return more than £5bn to shareholders within three years - equal to around 40% of its market capitalisation.

Core operating profits were up 6% last year at £1.62bn, with a decline in asset management profits outweighed by growth in the retail and institutional retirement divisions.

4imprint tumbled as the direct marketer of promotional products posted a rise in full-year profits and revenues but struck a cautious note on the outlook.

Source: Sharecast

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Glendon

Economic

Forex

SINGAPORE (March 12): There is about a 40% chance of a US recession this year and a risk of lasting damage to the country's standing as an investment destination if the administration undermines trust in US governance, according to JPMorgan's chief economist.

"Where we stand now is with a heightened concern about the US economy," Bruce Kasman, the US investment bank's chief global economist, told reporters in Singapore on Wednesday.

He said he had not yet revised any forecasts, but put a roughly 40% recession risk into the outlook — up from about a 30% chance he had reckoned on at the start of the year. JPMorgan's current forecast is for 2% US gross domestic product (GDP) growth this year.

US stocks have suffered their sharpest sell-off in months over recent days, as investors have grown nervous that US President Donald Trump will slow the economy with import duties.

Ninety-five percent of economists polled by Reuters last week across Canada, Mexico and the US said recession risks in their economies had increased as a result of Trump's tariffs.

Economists at Goldman Sachs and Morgan Stanley last week downgraded their US GDP growth forecasts, with Goldman now seeing growth at 1.7% and Morgan Stanley at 1.5%.

Kasman said the recession risk would rise, probably to 50% or above, if reciprocal tariffs that Trump has threatened to impose from April were to meaningfully come in to force.

"If we would continue down this road of what would be more disruptive, business-unfriendly policies, I think the risks on that recession front would go up," Kasman said.

He also said that discomfort around the administration's style could shake investor faith in US assets if it challenged trust, built over many years, in US markets and institutions.

"The US seems to have established itself as a place where people can be comfortable about rule of law...comfortable about the integrity of information flow, and they can be comfortable that the government isn't going to be, in unexpected ways, getting involved in the rules of the game," he said.

The administration's cutbacks to government agencies, changes to the US role in the world, and decisions such as a move last week to disband advisory committees assisting with data collection, may undermine that, Kasman said.

"All of those things are part of the uncertainties that have moved into US policy, and that part of the risk in the outlook this year I don't think has been appreciated," he said.

"The term which has been in place for a very long time is that we have 'exorbitant privilege'. That we end up paying a much lower cost for financing our deficits and debt, we have much greater capital flows and attractiveness of the dollar and assets, because of these things," he said.

"The risk that that stuff starts to come under pressure and becomes a structural issue in the markets is not something I would, by any means, underplay."

Source: Theedgemarkets

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Alex

Economic

Singapore and Vietnam on Wednesday have agreed to enhance cooperation in subsea cables, finance, and energy, marking an upgrade in their relations to Vietnam's highest level, during a visit by its Communist Party Chief To Lam to the city-state.

Singapore is the third Southeast Asian nation, after Malaysia and Indonesia, with which Vietnam has established a "comprehensive strategic relationship".

In a joint statement released following the upgrade, Lam and Singapore's Prime Minister Lawrence Wong witnessed the exchange of six agreements and discussed cooperation in undersea cable development, digital connectivity, and cross-border data flows.

Southeast Asian countries, a major junction for cables connecting Asia to Europe, aim to expand their networks to meet the surging demand for AI services and data centres. Vietnam alone plans to launch 10 new submarine cables by 2030.

In December, Reuters reported that Singaporean asset manager Keppel and Vietnamese conglomerate Sovico Group were discussing plans for new undersea fiber-optic cables to boost the region's data centre industry, according to sources familiar with the matter.

In April last year, Vietnam's state-owned telecom company Viettel and Singapore's Singtel announced a preliminary agreement to develop an undersea cable linking Vietnam directly to Singapore, although no construction contract has been announced yet.

The two leaders also discussed green development, industrial parks expansion, and peace and stability in the region. Singapore pledged to support Vietnam in developing international financial centres, the joint statement said.

Singapore ranks among Vietnam's top foreign investors, having invested $10.21 billion last year, which accounted for 27% of Vietnam's total foreign investment, official data showed.

Source:Reuters

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Owen Li

Economic

Levels of open interest in the U.S. Treasuries futures market rarely garner much attention, but this might be one of those occasions, as President agenda threatens to slam the brakes on the U.S. economy, perhaps even putting it into reverse gear.

Commodity Futures Trading Commission figures show that open interest, the broadest measure of investors' exposure to U.S. bond futures, is sliding at a historic pace. In some cases, such as two-year contracts, the fall is the sharpest on record.

In the week through March 4, open interest in two-year futures fell by a record 396,525 contracts, or nearly $80 billion. That's around 10% of investors' total exposure, and it means overall open interest is down 17% from its peak around the U.S. presidential election in November.

Open interest in the 10-year space fell by 503,744 contracts, or $50 billion, the third biggest weekly fall on record and again around 10% of total exposure.

The value of open interest across two-, five- and 10-year contracts fell by $179 billion in the week to $1.858 trillion, the lowest since June last year. More significantly, this marked a notable 9% decline in a single week.

Why does this matter? As a paper by Federal Reserve staffers Andrew Meldrum and Oleg Sokolinskiy found last month, cash market depth "significantly affects liquidity fragility in all maturity sectors" of the Treasury market. In other words, the slump in open interest could mean that one of the world's most important markets has become easier to disrupt.

Exposure to Treasury futures plunges at risky moment: McGeever_1

'POINT OF CONCERN'

Some of this activity is seasonal, as funds are rolling their positions into new benchmark contracts. And some is related to the so-called basis trade, the arbitrage play used by hedge funds to exploit the tiny price difference between cash bonds and futures.

So far, so normal, in which case open interest should pick up again in the coming weeks as investors of all stripes - particularly asset managers on the 'long' side and hedge funds on the 'short' side - rebuild their exposures.

But the sharp moves are coming at a time of heightened volatility and uncertainty across all markets. Wall Street and U.S. Big Tech have borne much of the brunt, with around $5 trillion wiped off the value of U.S. stocks in the last three weeks. But volatility is on the rise everywhere.

Treasury yields have tumbled around 60 basis points in the last month, and implied volatility as measured by the MOVE index this week rose to its highest in four months.

True, there has been no sign of market dysfunction despite the big price moves, but room for complacency is shrinking.

"Uncertainty could keep some investors away," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. "If open interest doesn't come back it could be a sign that risk managers are deleveraging. Right now it's something to watch closely rather than a point of concern."

Exposure to Treasury futures plunges at risky moment: McGeever_2

RECORD FALLS

Much of the decline in recent months is down to leveraged funds reducing their 'short' positions more aggressively than asset managers scaling back their corresponding 'long' positions, suggesting speculators are deleveraging.

The value of leveraged funds' aggregate short position across two-, five- and 10-year contracts is now $970 billion. That's down by almost a fifth from the record high of $1.186 trillion in November last year.

This is probably not a bad thing and will likely please regulators who had warned that a disorderly unwind of funds' basis trades could pose major financial stability risks. That hasn't played out.

But further reduced open interest from here at a time of rising volatility might put liquidity, prices and investors' ability to trade under greater strain.

As Meldrum and Sokolinskiy note, "Times of low market depth are associated with an increased probability of low liquidity states in the future."

And at this delicate juncture, anything that impacts liquidity in the world's most important market is certainly worth monitoring.