Deutsche Bank Outlines Two Paths For ECB Interest Rates

Central Bank

Summary:

The European Central Bank is tipped to slash borrowing costs three more times this year, bringing its key deposit rate down to 1.5% by the end of 2025, according to analysts at Deutsche Bank.

But in a note to clients, the brokerage warned that there are "two-sided risks" to this estimate.

In one scenario, the implementation of partially-delayed U.S. tariffs leads to a "growth shock" in the eurozone, persuading the ECB to bring policy rates below the 1.5% level.

Another outcome revolves around broader economic "resilience" stopping an ongoing ECB rate easing cycle before borrowing costs dip to 1.5%.

"Our baseline continues to have the ECB cutting rates by 25 basis points in June, September and December," the analysts wrote.

They added that, due to ructions in stock and bond markets after Trump first announced his punishing tariffs in early April and the possibility that the tariffs could be "disinflationary" in the eurozone, the ECB recent easing cycle may continue and the 1.50% terminal rate might be reached in September.

Last month, the ECB cut interest rates as widely expected in an attempt to boost a eurozone economy that had been struggling even before the unveiling of U.S. President Donald Trump’s sweeping "reciprocal" tariffs.

Policymakers have also noted that both headline and core inflation declined in March, while services sector price gains have also cooled markedly over recent months -- potentially suggested that inflation could settle at around the ECB’s 2% medium-term target on a sustained basis.

The central bank slashed its benchmark deposit rate by 25 basis points to 2.25%, the seventh reduction in a year, while the interest rate on its main refinancing operations fell to 2.40% and its marginal lending facility dropped to 2.65%.

The eurozone economy has been building up some resilience against global shocks, the central bank said, but the outlook for growth has deteriorated owing to rising trade tensions.

Although Trump has postponed his elevated tariffs on the European Union, which includes many eurozone countries, other levies remain in place, such as universal 10% duties and tariffs on items like steel, aluminum and autos.

"Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions," the ECB said. "These factors may further weigh on the economic outlook for the euro area."

ECB officials have estimated that growth across the 20 countries that share the euro currency could fall by half a percentage point this year if the tariffs are eventually imposed.

Source: Investing

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Adam

Stocks

China–U.S. Trade War

Market watchers have labeled the new U.S.-China deal to temporarily cut tariffs “better than expected,” “more workable” and even a “dream scenario” — and are expecting more near-term relief for investors.

Under the deal, so-called reciprocal tariffs will drop from over 100% to 10% on both sides. The Trump administration will keep 20% fentanyl-related tariffs on China in place, meaning America’s total duties on Chinese imports will stand at 30% while the 90-day pause is effective.

Stocks in Europe and Asia rallied after the terms of the U.S.-China agreement were announced, with Europe’s Stoxx 600 index gaining 1%, Germany’s DAX hitting a 1-year high, and Hong Kong-listed shares jumping by around 3%.

On Wall Street, U.S. stock futures also pointed to a rally, with Nasdaq futures up 3.8%, S&P 500 futures rising by 2.8% and Dow Jones Industrial Average futures gaining 3.1%.

Analysts and strategists said on Monday that the new U.S.-China arrangement could reignite risk-on sentiment, benefiting stocks and U.S. assets.

In a note to clients on Monday, Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management, said the deal unveiled in Geneva was better than anticipated, but uncertainty remained.

“The magnitude of this tariff reduction is larger than expected,” he said, although he noted that it would be difficult for Beijing and Washington to reach a more concrete trade arrangement in just three months.

“The 90-day period may not be sufficient for the two sides to reach a detailed agreement, but it keeps the pressure on the negotiation process,” Hui said. “We are still waiting for further details on other terms of this agreement, for example, whether China would relax on rare earth export restrictions.”

However, Hui acknowledged the positive market reaction to the news.

“Overall, we expect the market to get back on to a risk-on sentiment in the near term,” he said. “Pressure on the [Federal Reserve] to cut rates may also ease for the time being.”

End of the ‘Sell America’ narrative?

Jordan Rochester, head of currency strategy EMEA and executive director at Mizuho Bank in London, touted the deal as “much better news than expected” in a Monday morning note. He argued that the developments would mean “the ‘Sell America’ narrative [gets] squeezed.”

U.S. assets, including the dollar , Treasurys and stocks, have seen major volatility in the weeks since Trump unveiled the full extent of his tariffs plans.

On Monday morning, the U.S. dollar index , which measures the value of the greenback against a basket of major currencies, was up 1%. The yield on the benchmark U.S. 10-year Treasury note was up by 6 basis points as the price edged lower.

According to Rochester, the 90-day deal takes the effective U.S. tariff rate — what Chinese companies will actually end up paying — from 108.8% to 27%, which he noted was well above the market consensus of a reduction to the range of 50% to 60%.

“It is also notable how [officials] played down the requirement for talks to continue past 90 days in the press conference with ‘as long as talks are constructive,‘” he said. “What this means for international trade is the de facto ‘tariff wall’ has been lowered to something more workable and also raises the market pricing of other countries to get similar treatment when in talks with the US down the line.”

The better-than-expected results from the trade negotiations mean stocks could rally further, according to Wall Street strategists.

“Although stocks have rebounded, there is still much dispersion [between] domestics and exporters under the hood, dollar risk premium remains high, and overall positioning is light/defensive,” Emmanuel Cau, head of European equity strategy at Barclays, said in an emailed statement. “Pain trade to the upside means stocks have room to overshoot.”

‘Stay bullish’

Meanwhile, strategists at Deutsche Bank said their sentiment had been significantly boosted by the morning’s news. They are now expecting U.S. stocks to outperform their European rivals in the short term.

“Today’s announcement even exceeds our constructive expectations,” they said. “In our view, this announcement is not only better than we expected but also better than the market would have expected back in March.

“Although it is hard to tell how this will develop after the 90-day period, the implications for markets are clearly supportive ... Stay bullish and consider stepping back into China tariff-exposed sectors (ex Autos, Health Care and Chips).”

Mikkel Emil Jensen, senior analyst at Sydbank, said the 90-day tariff pause marked a major de-escalation in the U.S.-China trade war.

″[It] removes a large chunk of uncertainty related to world trade — at least for now,” Mikkel Emil Jensen, senior analyst at Sydbank, told CNBC after the news was announced.

“The deal might be temporary, but the deal is better than expected and could ignite positive ripple effects on global trade and increase the demand for container freight,” the Sydbank analyst said. Shares of shipping giant Maersk were over 12% higher on Monday morning.

“More so, the temporary deal might boost the front-loading effect, triggering companies to increase inventories before a potential worsening of the trade war,” Jensen added.

‘Dream scenario’

Also reacting to the news, Wedbush’s Dan Ives said he believed the U.S.-China deal was “clearly just the start of broader and more comprehensive negotiations,” describing the news as “a huge win for the market and bulls.”

“We would expect both these tariff numbers to move down markedly over the coming months as deal talks progress,” he said in a note. “The baseline view heading into the weekend was some de-escalation of US/China tariffs and the agreement for more talks ... instead in a dream scenario this morning [officials] came out of these talks with massive cuts to reciprocal tariffs.”

Ives, who’s known for his bullish outlook on tech, argued that the agreement meant new highs for markets and tech stocks were “now on the table in 2025.”

Trade between the world’s two largest economies is expected to swiftly resume following the cut in tariffs, reversing the decline in freight vessels and shipping containers since the tariffs announcement in early April.

Lindsay James, investment strategist at Quilter, said the new deal was “not quite as good as the 20% level that existed before so-called Liberation Day,” but added that the temporary agreement would enable “a considerable proportion of trade resume, albeit at slightly higher prices.”

Cnbc: source

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Adam

Economic

China–U.S. Trade War

The Federal Reserve got one more reason to wait on cutting interest rates after a delay of the most punitive tariffs imposed in the Trump administration's trade battle with China appeared to reduce the chance of a U.S. economic slowdown that would force the central bank to rush to the rescue by reducing borrowing costs.

With U.S. bond yields rising and stock futures pointing to higher equity prices, traders of contracts tied to the Fed's benchmark interest rate pushed out bets for an initial rate reduction to September, and now see only a half-point reduction by year's end.

A dollar rising after the announcement that tariffs would be lowered for now would also, all things equal, help temper inflation.

The Fed last week kept its target for short-term borrowing costs in the 4.25%-4.50% range. Fed Chair Jerome Powell said that with few signs to far that tariffs are slowing the job market but inflation still above the Fed's 2% goal, the right move for now is to keep rates where they are until there is more clarity.

Markets had been expecting that the Fed would see a need to cut by July, and priced in a total of three quarter-point interest-rate cuts over the course of the year, based on trading in futures that settle to the Fed's policy rate. Those expectations shifted after U.S. and Chinese negotiators said they would limit initial tariff increases for 90 days while discussing a more comprehensive deal.

The U.S. lowering to 30% in tariffs that had reached 145% on Chinese imports "significantly reduces the risk of goods shortages and higher inflation," analysts from Citi said. "The Fed can now more comfortably stay 'patient.'

Source: reuters

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Thomas

Economic

President Donald Trump on Monday revived a controversial policy that aims to slash drug costs by tying the prices of some medicine in the U.S. to the significantly lower ones abroad.

Trump signed an executive order including several different actions to renew that effort, known as the “most favored nation” policy. He did not refer to specific nations, but signaled that he would target other developed countries because “there are some countries that need some additional help, and that’s fine.”

“Basically, what we’re doing is equalizing,” Trump said during a press event on Monday. “We are going to pay the lowest price there is in the world. We will get whoever is paying the lowest price, that’s the price that we’re going to get.”

White House officials did not disclose which medications the order will apply to, but said it will impact the commercial market as well as Medicare and Medicaid. They said Monday’s announcement will be broader than a similar policy that Trump tried to push during his first term, which only applied to Medicare Part B drugs.

Officials added that the administration will have a particular focus on drugs that have the “largest disparities and largest expenditures,” which could include popular weight loss and diabetes treatments called GLP-1 drugs.

It’s unclear how effective the policy will be at lowering costs for patients. In a social media post on Monday, Trump claimed drug prices will be cut by “59%, PLUS!”

But Trump during the press event claimed drug prices may fall even more, between 59% and 80%, or “I guess even 90%.”

Shares of U.S. drugmakers rose Monday. Merck’s stock added more than 4%, while Pfizer and Amgen climbed more than 2%

How Trump’s drug pricing order will work

Part of the order takes aim at nations abroad, which have more power to negotiate down drug prices with pharmaceutical companies.

"Starting today, the United States will no longer subsidize the health care of foreign countries, which is what we were doing," Trump said, adding the U.S. "will no longer tolerate profiteering and price gouging from Big Pharma."

He added that "it was really the countries that forced Big Pharma to do things that, frankly, I'm not sure they really felt comfortable doing."

The order directs the Office of the U.S. Trade Representative and the Department of Commerce to crack down on "unreasonable and discriminatory policies" in foreign countries that "suppress" drug prices abroad, the officials said.

"We are going to be working to make sure that countries aren't being unfair in their negotiations with pharmaceutical companies, right?" one official said. Drugmakers are "constantly complaining" about being put "in an untenable situation when in these negotiations" because those companies typically have to broker drug discounts with entire countries, the official added.

Unlike the U.S., several foreign countries offer universal health coverage where the government is the sole payer, giving it significant leverage to negotiate or set drug prices.

White House officials said they expect drugmakers to provide discounts across the board to "reciprocate" the actions the Trump administration is taking to address prices abroad.

Trump's order also directs the secretary of the Department of Health and Human Services to establish a pathway for U.S. patients to buy their drugs directly from manufacturers at "most favored nation" prices, bypassing middlemen.

"We're going to cut out the middlemen and facilitate the direct sale of drugs at the most favorite nation price, directly to the American citizen," Trump said.

Within 30 days, the secretary will also have to set clear targets for price reductions across all markets in the U.S., according to the officials. That will open up a round of negotiations between HHS and the pharmaceutical industry, officials said, not providing exact details on the nature of those talks.

If "adequate progress" is not made towards those price targets, HHS Secretary Robert F. Kennedy Jr. will impose the most favored nation pricing on drugs through rulemaking.

The order also directs the Food and Drug Administration to consider expanding imports from other developed nations beyond Canada. Trump signed a separate executive order in April directing the Food and Drug Administration to improve the process by which states can apply to import lower-cost drugs from Canada, among other actions intended to lower drug prices.

Monday's order also directs the Department of Justice and Federal Trade Commission to aggressively enforce "anti-competitive actions" that keep prices high in the U.S.

The Department of Commerce will also consider export restrictions that "fuel and enable that low pricing abroad."

It is Trump's latest effort to try to rein in U.S. prescription drug prices, which are two to three times higher on average than those in other developed nations – and up to 10 times more than in certain countries, according to the Rand Corporation, a public policy think tank.

The order is a blow to the pharmaceutical industry, which is already bracing for Trump's planned tariffs on prescription drugs. Drugmakers have argued that the "most favored nation" policy would hurt their profits and ultimately, their ability to research and develop new medicines.

White House officials contended that pharmaceutical companies will continue to make money after the price cuts if they realize that the U.S. "alone is not going to pay for innovation" and if they increase prices abroad to get additional revenues there.

Drugmakers "should pursue deals where they get financially rewarded commensurate the value that they are providing to other nations, health systems," one official said.

"Other countries should pay research and development too. It's for their benefit," Trump added on Monday.

The policy could help patients by lowering prescription medication costs, which is an issue top of mind for many Americans. More than three in four adults in the U.S. say the cost of medications is unaffordable, according to a KFF poll from 2022.

The industry also lobbied against similar Trump plans during his first term. He tried to push the policy through in the final months of that term, but a federal judge halted the effort following a lawsuit from the pharmaceutical industry. The Biden administration then rescinded that policy.

White House officials initially pressed congressional Republicans to include a "most favored nation" provision in the major reconciliation bill they plan to pass in the coming months, but the policy would have specifically targeted Medicaid drug costs, Politico reported earlier this month. Several GOP members opposed that measure.

The effects on patients, companies

The industry's largest trade group, PhRMA, estimated that Trump's Medicaid proposal could cost drugmakers as much as $1 trillion over a decade.

Some health policy experts have said a "most favored nation" drug policy may not be effective at lowering medication costs.

For example, USC experts said the policy "can't undo the basic economics of the global drug marketplace," where 70% of pharmaceutical profits worldwide come from the U.S.

"Facing a choice between deep cuts in their U.S. pricing or the loss of weakly profitable overseas markets, we can expect many firms to pull out from overseas markets at their earliest opportunity," experts said in a report in April.

That will leave Americans paying the same amount for medications, drugmakers with lower profits and future generations of patients with less innovation, they said.

"In sum, everyone loses," the experts said.

Other experts have said another legal fight with the pharmaceutical industry could prevent the policy from taking effect.

But even if the drug industry pushes back on Trump's executive order, his administration still has another tool to push down drug prices: Medicare drug price negotiations.

It's a key provision of the Inflation Reduction Act that gives Medicare the power to negotiate certain prescription drug prices with manufacturers for the first time in history.

Trump last month proposed a change to that policy that drugmakers have long sought. Lawmakers on both sides of the aisle could be receptive to the idea, which proposes changing rules that differentiate between small-molecule drugs and biologic medicines.

Trump last week said he plans to announce tariffs on medicines imported into the U.S. within the next two weeks. Those planned levies aim to boost domestic drug manufacturing.

Drugmakers, including Eli Lilly and Pfizer, are pushing back on those potential duties. Some companies have questioned whether the tariffs are necessary, given that several of them have already announced new U.S. manufacturing and research and development investments since Trump took office.

Still, Trump last week doubled down on efforts to reshore drug manufacturing. He signed an executive order that streamlines the path for drugmakers to build new production sites.

Caplan noted that even if the drug industry pushes back on the executive order, the administration still has another tool at its disposal: Medicare drug pricing negotiations.

Source:CNBC

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Blue River

Forex

Technical Analysis

USDCAD stretches to 1.4000. 200 day MA eyed

The USDCAD has extended its gains and pushed above the key 1.4000 level, reaching a high of 1.40043. The next upside target comes in at the 200-day moving average at 1.40106, followed by resistance at 1.40268, a prior swing area high. Beyond that, the 38.2% retracement of the decline from the March 2025 high sits at 1.40525, marking a more significant hurdle for buyers.

The earlier dip in price found support at 1.3977, the April 15 swing high, where buyers leaned in and reasserted control. That successful retest reinforced the bullish bias and helped fuel the move back toward and through 1.4000.

While the break above 1.4000 is constructive, buyers still have work to do. A sustained move above the 200-day moving average, and ultimately the 1.40525 retracement level, is needed to confirm a stronger upside shift. For now, momentum remains with the buyers.

Source: ForexLive

Risk Warnings and Disclaimers

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Adam

Economic

China–U.S. Trade War

President Donald Trump's trade war truce with China still leaves a hefty 30% tariff in place, at least for the time being.

On Monday, the White House announced that the U.S. and China had agreed to lower trade barriers with one another, simmering down a trade war that had exploded last month. The U.S. will pause the harshest tariffs for 90 days, while leaving a 10% "baseline" tariff in place, along with a 20% tariff that Trump said was to push China to crack down on fentanyl smuggling to the U.S. Tariffs of 25% remain on certain products including steel, aluminum, and automobiles.

Although the trade deal announced Monday was a significant reduction and raised hopes that negotiations could further reduce import taxes, tariffs are still far higher than they were before Trump started raising them.

The effective tariff rate on all U.S. imports after the tariff announcement is 15%, down from 24%, Abigail Watt, an economist with UBS, estimated in a commentary. Before Trump took office for the second time, the average tariff rate was 3%, according to an estimate by the Peterson Institute for International Economics.

Economists predict merchants will pass those import taxes on to consumers, meaning the tariffs could push up the cost of living and risk reigniting high inflation. Lowering the tariffs reduces those risks, economists said.

"The outcome of the U.S./China talks this weekend seem to take us back to pre-'Liberation Day' levels," Jim Reid, research strategist at Deutsche Bank, wrote in a commentary. "Increasingly, it’s as if the last six weeks have been a bad dream and never actually happened."

Dialing back the trade wars could help the economy on several fronts.

"This helps the economy in the short run," Jon Hilsenrath, senior advisor at StoneX, wrote in a commentary. "Tariffs squeeze corporate profit margins, so reducing them will help boost profits and stock values. Households will see their 401(k) retirement plans improve, which could help consumption. It also reduces the risk of consumer price inflation and shortages on store shelves. It will relieve some anxiety at the Federal Reserve about inflation; it could help to hold down interest rates. That's all good news."

Source: investopedia

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Adam

Commodity

CL/WTI Technical Analysis

The light sweet crude oil market has rallied rather significantly during the session here on Monday as we have reacted to the announcement over the weekend that the United States and China have cut tariffs quite drastically, with a 90-day ceasefire as it were between the two countries in order to work out a deal.

This does bode well for the idea of global trade, which, of course, bodes well for the idea of crude oil rallying. Ultimately, as long as the market continues to see hope. I think it’s only a matter of time before we bottom here and oil really starts to take off. The $65 level though, needs to be overcome for the next leg higher. In the short term, I think pullbacks continue to offer buying opportunities, with a special focus on the $60 level.

Brent Technical Analysis

Brent markets, of course, have rallied significantly as well, with the 50-day EMA sitting right around the $67 level being a potential target. We, of course, are rallying here just as we are in the light sweet crude oil market, and therefore, I think the analysis is very similar. We’re looking for short-term pullbacks as buying opportunities in a market that quite frankly probably is in the process of forming a longer-term bottom.

The $60 level below I think is a major support level as well. So, with that being said, I like the idea of buying Brent on dips. And if we can clear the $70 level, it’s likely that Brent will take off to the upside.