Barclays Europe CEO on What Trump's Tariffs Could Do to the EU Economy

Economic

Summary:

The CEO of Barclays Europe shares his views on the potential impact of tariffs on Europe's economy and whether the continent is still economically attractive to investors.

“There is a foundation to believe in the attractiveness of Europe, especially on a relative basis,” Francesco Ceccato, Barclays Europe CEO, told Euronews' Business Editor, Angela Barnes, in an exclusive interview.

“What we've seen in the year-to-date period is clearly a compression in the US stock market, for example, and an increase in the indices that I look at for the European stock market.”

According to a recent report from Morgan Stanley, European equities have this year outperformed US stocks by the widest margin since 2000.

The MSCI Europe Index has risen over 9% since January, beating the S&P’s slide of 4.5%.

To turn to the latest Fund Manager Survey from Bank of America, released this Tuesday, the data also showed the most significant rotation from US to European equities since records began in 1999.

A net 39% of fund managers now hold an overweight position in European equities, the highest level since mid-2021. On the other hand, 23% of investors report being underweight US stocks.

Despite the recent rally, researchers from Goldman Sachs have predicted that the uptick isn't fleeting. Last week, they suggested that European equities would rise as much as 6% in the next 12 months.

A tariff war

“There is clearly a lot of concern amongst the investors…around what some of the trade disruption might do to the economy,” Ceccato said, referring to tariff threats from US President Donald Trump.

The White House noted on Tuesday that new reciprocal tariff rates would take effect on 2 April, despite suggestions that they could be delayed.

While the US is looking to mirror some trade barriers established by other nations, it has also imposed another raft of levies.

Trump has - for instance - introduced a 25% tariff on all steel and aluminium imports. That’s as well as placing a 20% tariff on incoming Chinese goods and threatening a 200% levy on EU alcohol imports.

Trade policies are likely to have “significant” impacts on the US, said Ceccato, harming growth and pushing up inflation.

Ceccato added that Europe is also set to suffer from a tariff war, although economies could see a boost from extra defence spending.

"The euro area has roughly €480 billion of goods exports to the US. Now, at the moment, the latest models that our research team have looked at are relatively mild in terms of the tariff assumption that's being made. But were there to be a 25% tariff on all of those goods, that could actually tip the eurozone into recession,” he said.

Greater defence spending

Meanwhile, Germany’s parliament has just this week approved a reform of its debt brake proposed by chancellor-in-waiting Friedrich Merz, which allows for more fiscal flexibility.

Defence spending of more than 1% of GDP will be exempted from the strict debt limit and state governments will be allowed to run annual deficits of up to 0.35% of GDP. The bill will also establish a €500 billion fund to invest in the country’s ageing infrastructure.

On the prospect of greater military spending, Europe’s defence companies are cashing in. Rheinmetall shares are up around 124.8% in the year to date, Thales stock has jumped 79.2%, while shares in Leonardo have risen 82.9%.

Savings and Investments Union

Discussing how Europe can further improve its competitiveness, Ceccato noted that the EU still needs to work on developing deeper pools of capital.

“We also need to think creatively about how we can use…the firepower that we have in some of our European institutions to pair up with private capital, that is, institutional capital that can be brought to bear to tackle some of these Herculean challenges,” he said.

Ceccato explained that if Europe wants to effectively support its industries, it cannot solely rely on retail investments made by members of the public.

Compared to EU firms, companies in the US still find it easier to access capital due to the scale of the market and flexible funding options. A more risk-averse sentiment in the EU, as well as a more fragmented financial market across diverse member states, can hamper innovation.

"This is still all about capital, capital, capital," said Ceccato.

Source: Euronews

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Warren Takunda

Economic

Australia reported a surprisingly large slump in employment of 52.8k, whereas the consensus looked for an increase of 30k for February.

The previous month's figure was lowered to 30.5K and the participation rate fell to 66.8% from 67.2%, leaving the unemployment rate unchanged at 4.1%.

Following the release, money markets raised the odds of a May rate cut at the Reserve Bank of Australia (RBA) to 74%, compared to 62% prior to the release.

This adjustment prompted a fall in Australian bond yields, which automatically weighed on AUD.

"AUD/USD slumped by around 0.5% after the unusual configuration of Australian labour market data," says Joseph Capurso, an economist at Commonwealth Bank of Australia.

The Pound-to-Australian Dollar exchange rate (GBP/AUD) is up half a per cent at 2.0546.

However, breaking down the data reveals some curious developments that suggest the moves should fade.

The ABS says the fall in employment was largely due to older workers aged 55 and over opting not to return to work in February.

"We don’t think this print in isolation will have a material impact on the RBA’s monetary policy decisions moving forward. Labour market fundamentals remain solid, with an overall robust trend in employment growth," says Aaron Luk, an economist at ANZ.

The ABS noted "higher levels of retirement in Australia in recent months", which also explains the downside surprise for the participation rate.

"As cost-of-living pressures have moderated, the impetus for marginal workers to remain in the labour force has diminished," says Ryan Wells, an economist at Westpac.

Westpac's stance is that the RBA "is unlikely to read too much into this month’s data," owing to the underlying trends, which suggests scope for financial market moves to fade.

Australian Dollar price action should increasingly shift to the U.S. tariff announcement due on April 02, where significant downside risks lie for trade-sensitive currencies like the AUD.

Source: Poundsterlinglive

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Glendon

Economic

Forex

(Bloomberg) -- Swiss National Bank officials cut their interest rate to the lowest since September 2022 to deter inflows into the franc, and declared another reduction is less likely for now.

Officials led by President Martin Schlegel trimmed their benchmark by a quarter point to 0.25% on Thursday, in a step anticipated by traders and a large majority of economists. He signaled to reporters in Zurich that the central bank doesn’t anticipate more easing at the current juncture.

“This rate cut has an expansionary impact,” Schlegel said. “In that sense, the probability of additional policy easing is naturally lower.”

The SNB’s fifth step in the current cycle leaves its rate at the lowest of any managing the world’s 10 most-traded currencies. Analysts largely reckon that this was its final reduction of the cycle.

The Swiss franc erased gains after the decision, traded slightly lower at 0.9572 versus the euro. Swaps pricing indicates traders expect no more rate cuts by the SNB this year.

The central bank’s activism contrasts with the hesitancy to ease further by global peers such as the US Federal Reserve, which on Wednesday acknowledged a backdrop of high uncertainty. Similarly, Sweden’s Riksbank kept borrowing costs unchanged and said it has finished cutting.

The SNB move, following up on a surprise half-point reduction in December, shores up its foreign-exchange policy in anticipation of volatile times ahead. While the franc has weakened this year, the currency remains a potential haven for investors guarding against instability just as US President Donald Trump ratchets up global trade tensions and war continues to rage in Ukraine.

“We also remain willing to be active in the foreign exchange market as necessary,” Schlegel said, sticking with the SNB’s standard language, as observed how the backdrop has shifted. “Uncertainty about global economic and inflation developments has increased significantly.”

What Bloomberg Economics Says...

“This decision reflects the increased uncertainty around the inflation outlook amid threats of tariffs and a high level of geopolitical uncertainty, both of which could put upward pressure on the currency. The decision can be seen as insurance against those risks.”

—Jean Dalbard, economist.

The reduction might pre-emptively dissuade inflows, but also uses up precious room for easing before reaching zero, which is now just one conventional quarter-point step away.

Dropping the rate to that level would force officials into a tough choice between market interventions to repel foreign-exchange speculation or else going negative again, as they did in the period from 2015 until 2022.

While subzero borrowing costs inflict pain on the country’s financial system, selling the franc could potentially drawing the ire of Trump, whose administration branded Switzerland as a currency manipulator when he was last in office.

Data released this week showed the SNB largely kept out of foreign exchange markets in the final three months of 2024, marking a full year without sizable interventions. While the franc rose against the euro after Trump’s election in November, it erased those gains and has since weakened.

“I can clearly say Switzerland is not a currency manipulator,” Schlegel told Bloomberg Television on Thursday. Past “interventions were necessary to maintain price stability,” he said. “This was not to gain competitive advantage for Switzerland.”

The decision to cut and contain market pressure is intended to stop strength in the currency from lowering import costs too far, hurting inflation. Consumer-price growth has weakened considerably from a peak of 3.5% to reach near zero in February.

Officials slightly lifted their forecast for 2025 inflation on Thursday. They now expect it to average 0.4% this year, and 0.8% in 2026 and 2027, after it was previously seen at 0.3% in 2025 and 0.8% in 2026.

The outlook for inflation “is currently very uncertain,” Schlegel said. “The risks are predominantly to the downside.”

Policymakers kept intact their outlook for Switzerland’s economy after the strongest expansion in almost two years last quarter. The SNB still expects growth in a range of 1-1.5% this year.

“This was the last rate cut of the SNB this year,” said Karsten Junius, the chief economist at Bank J Safra Sarasin. “Upward revisions of the inflation profile indicate that no further rate cut is needed.”

Source: Yahoo Finance

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Economic

The New Zealand economy was surprisingly strong in the final quarter of 2024, but the New Zealand Dollar is struggling.

The New Zealand economy grew 0.7% q/q in Q4 said Statistics New Zealand, exceeding estimates for 0.5% and the Reserve Bank of New Zealand's projection of 0.3%.

"Today’s print confirms that New Zealand has likely passed the worst of its downturn," says Bader Al Sarraf, an analyst at Standard Chartered.

The NZD should be rallying on the news as the strong outcome provides some cover for the Reserve Bank of New Zealand (RBNZ) to stop cutting interest rates, removing a major drag on the currency.

The market reaction suggests this is unlikely to happen:

The Pound-to-New Zealand Dollar exchange rate (GBP/NZD) is half a per cent higher on the day at 2.2480 and EUR/NZD is 0.56% higher at 1.8850.

NZD/USD is three-quarters of a per cent down at 0.5772.

So why is the New Zealand Dollar weaker despite the strong GDP data?

Currency analysts say a selloff in the Australian Dollar following surprisingly poor labour market data is weighing on the New Zealand dollar.

"NZD/USD fell by around 0.5% alongside a lower AUD," says Joseph Capurso, an economist at Commonwealth Bank of Australia.

On the same day NZ GDP numbers were released, Australian employment figures came out, showing a significant 52.8k fall (it was expected to rise by 30k) in February.

And, the previous month's number was revised lower to a 30.5k increase.

New Zealand Dollar is Dropping, Despite Genuine Good Economic News_1

Above: The NZD falls against GBP as Australian bond yields fall (lower panel). This confirms expectations for a quickening in rate cuts in Australia is weighing on NZD.

The Australian labour market data surprise prompted markets to increase expectations for an acceleration in interest rate cuts at the Reserve Bank of Australia.

This weighed on Australian bond yields, pulling the closely correlated New Zealand bond yield lower. The AUD and NZD were, in turn, dragged lower by falling yields in both countries.

In short, markets see a slowdown on Australia being bad for New Zealand, regardless of the solid Q4 economic data.

Economists at Auckland-based ASB say they are sceptical that the growth drivers in Q4 can maintain their pace given the broader global headwinds.

They, like other analysts, think more rate cuts are in store for New Zealand.

"While today’s print confirms that New Zealand has likely passed the worst of its downturn, we believe growth remains well below potential, and output is still far from levels that would threaten inflationary stability," says Standard Chartered's Al Sarraf.

"We expect the RBNZ to look through this stronger-than-expected Q4 print, as it has already placed greater weight on high-frequency indicators, which remain consistent with gradual monetary easing," adds Al Sarraf.

Markets are currently about 70bp of RBNZ interest rate cuts by year-end, which is weighing on New Zealand yields and its Dollar.

Source: Poundsterlinglive

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Michelle

Economic

Forex

ZURICH (March 20): The Swiss National Bank cut its policy interest rate by 25 basis points on Thursday, leaving borrowing costs just above zero, arguing that inflationary pressures were low despite uncertainty over the impact of US President Donald Trump's trade policies.

The SNB reduced its key rate to 0.25% from 0.5%, its fifth successive cut since it started lowering borrowing costs in March 2024, matching economists' expectations in a Reuters poll.

The Swiss franc weakened slightly against both the euro and the dollar after the decision.

It was last flat at 0.95705 against the euro, having traded around 0.9537 earlier and at 0.8803 to the dollar, leaving the US currency up 0.4% on the day.

"The SNB was not only the first big central bank to have started cutting rates in this cycle, with this step today, it likely is also the first one to have finished cutting rates," said Karsten Junius, chief economist at Bank J Safra Sarasin.

"The upward revisions of inflation profile indicate that no further rate cut is needed."

The decision comes on a busy day for central banks, with the Bank of England and Sweden's central bank also due to announce their policy decisions on Thursday.

The US Federal Reserve on Wednesday held interest rates steady, citing a period of "unusually elevated" uncertainty linked to the initial policies of the Trump administration.

The new 0.25% rate is the SNB's lowest since September 2022, and brings it close to sub-zero interest rates again, a move it has previously not ruled out.

"With today's rate adjustment, the SNB is ensuring that monetary conditions remain appropriate, given the low inflationary pressure and the heightened downside risks to inflation," the SNB said.

The cut aims at preventing a further decline in Swiss inflation, which eased to 0.3% in February, its lowest level in nearly four years, and keeping it within the 0-2% target range which the central bank defines as price stability.

The SNB said that its baseline scenario anticipated that global growth will be moderate over the coming quarters and that underlying inflationary pressure should continue to ease gradually over the next quarters, particularly in Europe.

It noted, however, that this scenario for the global economy is currently subject to high uncertainty.

"The situation could change rapidly and markedly, particularly from a trade and geopolitical perspective. For example, increasing trade barriers could lead to weaker global economic development," it said.

"At the same time, a more expansionary fiscal policy in Europe could provide stimulus to the economy in the medium term."

Source: Theedgemarkets

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Stocks

With the Federal Reserve's policy meeting out of the way, the central bank spotlight now turns to some of its European counterparts - the Bank of England, the Swiss National Bank and the Riksbank - with rate decisions due later today.

The BoE, at centre stage, is widely expected to keep rates on hold as it monitors the economic impact of U.S. President Donald Trump's tariff onslaught and the British government's imminent tax hike for employers.

With UK inflation stuck stubbornly above its 2% target, the BoE has cut borrowing costs by less than the European Central Bank and the Fed since last summer, contributing to the country's sluggish growth rate.

Ahead of that, investors will get UK wage data to chew on. Expectations are for pay growth across the whole economy, excluding bonuses, to have held steady at an annual 5.9% rate in the three months to January.

The Riksbank is similarly expected to stand pat on rates on Thursday, while economists see the SNB cutting its main policy rate by a quarter percentage point and holding it there until at least 2026.

Trump weighed in on Fed policy on Wednesday, saying the central bank would be better off cutting rates "as U.S. tariffs start to transition (ease!) their way into the economy", just hours after it left rates unchanged.

Fed Chair Jerome Powell said the Trump administration's initial policies, including extensive import tariffs, appear to have tilted the U.S. economy towards slower growth and at least temporarily higher inflation, even as policymakers still projected two rate cuts this year.

Morning Bid: Central Bank Baton Passes to Europe_1

Table displaying the most recent U.S. interest rate decisions made by the Federal Open Market Committee

Despite the risks to the U.S. economic outlook, investors chose to latch on to the prospect of further Fed easing ahead, sending stocks in Asia higher on Thursday.

Europe, meanwhile, looked set for a mixed open, with EUROSTOXX 50 futures up 0.07% but FTSE futures down 0.14%.

Geopolitics also remained prominent on investors' radar.

Israel's military said it intercepted a missile launched from Yemen early on Thursday as hostilities with the Houthis intensified. Trump has threatened to punish Iran over its perceived support for the Yemeni militant group.

The escalation of tensions in the Middle East sent oil prices higher on Thursday, with Brent crude futures up 0.55% and U.S. crude futures gaining 0.46%.

But capping those gains was the prospect of a return of Russian supply to the market, after Ukrainian President Volodymyr Zelenskiy said a halt to energy strikes in the war with Russia could be established quickly.

Trump and Zelenskiy agreed on Wednesday to work together to end Russia's war with Ukraine, in what the White House described as a "fantastic" one-hour phone call.

Key developments that could influence markets on Thursday:

- Bank of England, Swiss National Bank, Riksbank policy decisions

- UK wage data (January)

Source: Reuters

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Warren Takunda

Stocks

Asian shares were mostly higher Thursday following an advance on Wall Street after the Federal Reserve said the economy still looks healthy enough to keep interest rates where they are.

Markets were closed in Japan for a holiday.

Hong Kong’s Hang Seng lost 2.1% to 24,455.60 and the Shanghai Composite index dropped 0.5% to 3,408.98.

In South Korea, the Kospi jumped 0.3% to 2,637.10, while Australia’s S&P/ASX 200 added 1.2% to 7,918.90.

Taiwan’s Taiex jumped 1.9%, while the SET in Bangkok rose 0.4%.

On Wednesday, U.S. stocks also got a boost from easing yields in the bond market. When Treasurys are paying investors less in interest, investors may be willing to pay higher prices for stocks.

The S&P 500 jumped 1.1% to 5,675.29, while the Dow Jones Industrial Average gained 0.9% to 41,964.63. The Nasdaq composite rose 1.4% to 17,750.79.

The rally followed weeks of sharp and scary swings for the U.S. stock market as investors fret over how much pain President Donald Trump will allow the economy to endure in order to remake the system. He’s said he wants manufacturing jobs back in the United States and far fewer people working for the federal government.

Trump’s barrage of announcements on tariffs and other policies have created so much uncertainty that economists worry U.S. businesses and households may freeze and pull back on their spending.

Fed Chair Jerome Powell acknowledged the rising pessimism among U.S. consumers and companies shown by recent surveys, but he also pointed to data such as relatively low unemployment that show the economy is still strong. It’s possible to have periods where “people say downbeat things about the economy and then go out and buy a new car,” he said.

“Given where we are, we think our policy is in a good place to react to what comes, and we think that the right thing to do is to wait here for greater clarity about what the economy’s doing,” Powell said.

The Fed has been holding interest rates steady this year after cutting them sharply through the end of last year. While lower rates can help give the economy a boost, they can also push inflation upward.

Fed officials indicated they’re still penciling in two cuts to the federal funds rate by the end of this year, just as they were forecasting at the end of last year. But they are also seeing weaker growth for the U.S. economy and higher inflation than they were before. More than anything, the message from the Fed seemed to be how much uncertainty is clouding everything.

Powell pushed back against fears about what’s called “ stagflation,” where the economy stagnates but inflation remains high. The Fed doesn’t have good tools to fix such a toxic combination. The last time the U.S. economy suffered through it was in the 1970s, and Powell said, “I wouldn’t say we’re in a situation that’s remotely comparable to that.”

The yield on the 10-year Treasury dropped to 4.24% from 4.31% just before the Fed announced its decision. The Fed said it will also begin paring the monthly reductions of its trove of Treasurys beginning in April. Such a move can help keep longer-term yields lower than they would otherwise be.

On Wall Street, Nvidia helped support the market after rising 1.8% to cut its loss for the year so far to 12.5%. It hosted an event Tuesday where it largely “did a nice job laying out the roadmap” and fighting back against speculation the artificial-intelligence industry is seeing a slowdown in demand for computing power, according to UBS analysts led by Timothy Arcuri.

Tesla rose 4.7%, following two straight losses of roughly 5%. It’s still down 41.6% for 2025 so far. It’s been struggling on worries that customers are turned off by CEO Elon Musk’s leading efforts to slash spending by the U.S. government.

In other dealings early Thursday, U.S. benchmark crude oil gained 47 cents to $67.38 per barrel. Brent crude, the international standard, was up 46 cents at $71.24 per barrel.

The U.S. dollar fell to 148.27 Japanese yen from 148.69 yen. The euro slipped $1.0893 from $1.0905.

Source: AP

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