ECB Consensus Builds for June Rate Cut but no Appetite for Big Move

Central Bank

Economic

Summary:

Tariffs created disinflationary pressures. Data shows euro zone wage growth slowing. Longer term outlook remains foggy.

European Central Bank policymakers are becoming increasingly confident about cutting interest rates in June as inflation continues its march lower, but there is little to no appetite for a big move, six sources told Reuters.

ECB governors gathering in Washington for the International Monetary Fund and World Bank's Spring Meetings took stock of a weakening economy in the euro zone and around the world as uncertainty from tariffs imposed by U.S. President Donald Trump puts a dampener on investment.

Data out of the euro zone also showed business growth stalling this month and pay hikes expected to ease considerably.

Most importantly for inflation, the 20% tariff rate provisionally imposed by Trump on European goods had been less severe than modelled by the ECB and the risk of retaliation by the European Union had so far been averted.

That meant that many governors were now seeing growing chances of an eighth quarter-point cut at their June 4 meeting, when the ECB will update its own economic forecasts. The ECB trimmed its benchmark rate to 2.25% earlier this month.

In line with the ECB's official line, they were keeping an open mind, however, given that the decision was still more than a month away and economic policy had become unpredictable since Donald Trump's April 2 announcement.

An ECB spokesperson declined to comment.

Trump's move shook investor confidence in the U.S. economy and even its status as the world's safe haven, causing fuel prices as well as the dollar to fall against the euro.

This resulted in growing disinflationary pressure in the euro zone, assuaging concerns about high price growth becoming entrenched among even some of the more hawkish members of the ECB's Governing Council.

The outlook further out remains foggy, however, with the prospect of a more fragmented world, cheaper imports from China and stronger domestic demand from Germany's fiscal spending plans creating contrasting forces.

For this reason, too, policymakers who spoke to Reuters saw no reason at present to consider a bigger, 50-basis-point cut, which they also believed might raise unnecessary alarm among market participants.

Source: Reuters

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Thomas

Commodity

Economic

For the past two years, West Texas Intermediate (WTI) crude oil prices appeared to have a solid floor at $64 per barrel. However, in early April, WTI broke through this support level, falling to a four-year low of $56 per barrel.

The recent decline in crude oil prices is driven by three primary factors:

1. Slowing Growth in China: Since 2005, there has been a notable relationship between Chinese economic growth and crude oil prices – when Chinese growth peaks, crude oil prices tend to peak about a year later. China's growth rate peaked in 2021, and crude prices followed suit, peaking in 2022.

2. Increased U.S. Production: U.S. crude oil production has surged to 13.5 million barrels per day, adding significant supply to the global market.

3. Improved Fuel Efficiency: Over the past two decades, vehicles have become increasingly fuel-efficient. On average, cars now use about 2% less fuel per unit of distance driven each year compared to the previous year. These factors have collectively made it challenging for crude oil prices to sustain a significant rally.

OPEC's Role and Historical Context

Over the past few years, the Organization of the Petroleum Exporting Countries (OPEC) has cut production by 3.5 million barrels per day, with the majority of these cuts coming from Saudi Arabia. If Saudi Arabia decides to increase production, WTI prices could face further downward pressure.

Historical precedents highlight the potential impact of such a move. In late 2014, when Saudi Arabia boosted production, oil prices dropped from $90 to as low as $25 per barrel. Similarly, in 1985, Saudi Arabia increased production from 6 to 10 million barrels per day, causing oil prices to fall from $32 to $12 per barrel – a 70% decline.

If Saudi Arabia opts to prioritize market share over price support, WTI prices could decline even further. Additionally, tariffs could slow global demand.

Source: CME Group

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Owen Li

China–U.S. Trade War

Key points:

Trump to celebrate first 100 days with a rally in Michigan
Official says Trump studying a travel ban on various countries
Trump expects trade deals within 90 days, analysts skeptical

President Donald Trump and his administration this week will highlight the accomplishments of his first 100 days in office, while looking toward the next 100 days with a focus on trade deals and peace talks, White House officials said.

After a pace of changes that have thrilled allies and stunned adversaries, including in social policy areas such as transgender rights, one official said Trump has "torpedoes" in store but did not explain what those were.

Trump has enacted sweeping changes on a wide range of U.S. domestic and foreign policy priorities since taking office on January 20. He has upended the world economic order with tariffs, slashed the federal government with job cuts and done away with diversity programs in the public and private sector.

He has also attacked academia, law firms and courts.

This week, Trump plans to travel to Michigan for a rally to commemorate the 100-day milestone. The White House intends to highlight his economic vision, ejection of undocumented immigrants, changes to foreign policy, and work by billionaire Elon Musk's Department of Government Efficiency to purge the federal bureaucracy and cut what it sees as waste.

Celebrating those moves will be part of a broad victory lap around Trump's second-term launch that the official, speaking on condition of anonymity, described to reporters as a conservative's fantasy.

"Every morning I wake up, it’s like living in a dreamscape," he said.

While Trump officials laud the speed and breadth of his efforts to remake American society, critics say Trump has trampled on the rights of citizens and non-citizens, alienated allies and threatened U.S. supremacy in the world.

The president has withheld funding from universities for what his administration considers tolerance of anti-Semitic behavior; cut back on transgender rights; and done away with diversity, equity and inclusion (DEI) programs in the federal government and with federal contractors. This has had a broad knock-on effect throughout U.S. society.

The official said there is more to come, with lots of “torpedoes under the water."

That includes more executive action, a hallmark of Trump's first 100 days, which the official said would continue like a "snowball rolling downhill." He said the administration was still working on a travel ban for citizens from multiple countries.

Courts have stymied some of Trump's actions, drawing scorn from his allies and White House rebukes that those judges are thwarting the will of the head of the executive branch and the people who elected him.

While Trump will continue to wage war with the courts and a government bureaucracy that his team views as too bloated and out of line with his world view, another official said he would put more focus in his next 100 days on trade deals and peace talks.

The president launched an all-out trade war on numerous countries this year before putting reciprocal tariffs largely on hold to allow for negotiations with individual nations. His administration hopes to secure agreements within 90 days.

Experts say that is extremely unlikely, noting that Trump has not yet secured a single deal. His rhetoric about talks, particularly with China, has often been at odds with what the other country says is true.

The president will take an extended trip abroad next month, visiting Saudi Arabia, Qatar and the United Arab Emirates, and continue to push for peace in Russia's war with Ukraine.

Trump had promised to solve that conflict on "Day One," but peace has been elusive. The president conceded on Saturday that Russian President Vladimir Putin may not want to stop the war.

Source: Reuters

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Manuel

Economic

Bond

Spiking trade uncertainty is compounding rising debt and sluggish growth problems facing emerging markets and developing countries, but cutting their own tariffs could provide a big boost, said Indermit Gill, the World Bank's chief economist.

Gill said global economists were rapidly lowering their growth forecasts for advanced economies and somewhat less so for developing countries, at least for now, in the wake of a tsunami of tariffs announced by U.S. President Donald Trump.

The International Monetary Fund and World Bank spring meetings this week in Washington have been dominated by worries about the economic fallout from century-high U.S. tariffs - and retaliatory ones announced by China, the European Union, Canada and others.

The IMF on Tuesday slashed its economic forecasts for the U.S., China and most countries and warned that more trade strife would further slow growth. It forecast global growth of 2.8% for 2025, half a percentage point lower than its January forecast.

The World Bank won't issue its own twice-yearly forecast until June, but Gill said a consensus of global economists showed sizeable downgrades in forecasts for growth and trade. Uncertainty indices, which were already running far higher than a decade ago, also spiked after Trump's April 2 tariff moves.

Compared to earlier shocks, including the 2008-2009 global financial crisis and the COVID-19 pandemic, the current shock is the result of government policy, which meant it could also be reversed, Gill said in an interview with Reuters on Thursday.

He said the current crisis would further depress growth in emerging markets, after steady declines from levels around 6% two decades ago, with global trade now slated to grow by just 1.5% - well below the 8% growth seen in the 2000s.

"So it's a sudden slowdown on top of a situation that wasn't particularly good," he said, noting that portfolio flows to emerging markets and foreign direct investment (FDI) were also declining, much as they did during earlier crises.

"FDI was 5% of GDP in emerging markets during good times. Now it's actually 1% and so both portfolio flows and FDI flows are down overall," he said.

NEGOTIATE TRADE DEALS

High debt levels mean that half of some 150 developing countries and emerging markets are either unable to make debt service payments or at risk of getting there, a rate that was double the level seen in 2024, and could grow further if the global economy slowed, Gill said.

"If global growth slows down, trade slows down, more countries and interest rates stay high, then you are going to get many of these countries getting into debt distress, including some that are commodity exporters," he said.

Net interest payments as a share of gross domestic product - a measure of how much countries spend to service their debts - now stand at 12% for emerging markets, compared to 7% in 2014, returning to levels last seen in the 1990s. The rates are even higher for poor countries, where debt servicing costs eat up 20% of GDP now, compared to 10% a decade ago, he said.

That means countries are spending less on education, health care and other programs that could boost development, he said.

Interest rates are also slated to stay high, given rising inflation expectations, which means countries' debt could rise further if they needed to roll over existing debt, Gill said.

He said his advice to developing countries was to quickly and urgently negotiate agreements with the U.S. to lower their own tariff rates and avert high U.S. tariffs, and to extend lower tariff rates to other countries.

Doing so now made sense, with U.S. pressure potentially easing domestic resistance. World Bank modeling showed that such moves could boost growth substantially, Gill said.

Source: Reuters

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Manuel

Political

Economic

China–U.S. Trade War

President Donald Trump’s administration has drafted a framework to handle negotiations with trading partners rushing to secure deals to avert tariff hikes, according to people familiar with the matter.

Under the blueprint, US negotiators will use a template that lays out common areas of concern to help guide the discussions, the people said, speaking on condition of anonymity to detail the plan. Among those categories are tariffs, non-tariff barriers, digital trade, economic security and commercial concerns.

The talks would see the US host negotiators from a select number of countries each week, in a bid to manage the flood of foreign governments and trading blocs seeking tariff relief ahead of a mid-July deadline. That framework could change, according to the people familiar, and officials could raise additional issues specific to certain countries.

The administration’s plans were first reported Friday by the Wall Street Journal. Under the structure, the US will hold discussions with about 18 countries — six every week — over three weeks, in a rotation until they hit the deadline, the Journal reported.

The Office of the US Trade Representative, in a statement, said it is “working under an organized and rigorous framework and moving ahead quickly with willing trading partners.”

“President Trump and USTR have made U.S. objectives clear and our trading partners have a very good sense of what they can each individually offer,” the statement added. “This is why USTR is receiving dozens of meaningful and substantial proposals from countries in pursuit of fair and reciprocal trade with the United States.”

The effort offers to provide more clarity for a process that has unnerved equity and bond markets and left major US trading partners struggling to determine how to carry out talks with the US and what Trump is seeking.

Trump earlier this month announced sharp tariff increases on about 60 countries but then quickly paused those measures for three months to allow trading partners to negotiate deals, keeping in place a baseline 10% rate during the negotiating period. That has set off a flurry of visits from foreign delegations eager to strike a deal.

A South Korean delegation held talks earlier this week and Trump told reporters Friday that an agreement with Japan is “very close.”

Source: Bloomberg

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Manuel

Cryptocurrency

Stocks

Bitcoin (BTC) has been on fire this week, rising 12% over the past seven days as of 2 p.m. ET on Friday. Investors have been in "risk on" mode this week as trade tensions between the U.S. and nearly every country in the world seem to be easing, for now.

That helped companies downstream of Bitcoin's price, like Bitcoin miners. TeraWulf (WULF) is up 36% this week, Riot Platforms (RIOT) jumped 26.1%, and MARA Holdings (MARA) is up 17% for the week.

Bitcoin's big move

Cryptocurrencies have jumped this week as trade tensions eased around the world. The tensions didn't technically have anything to do with cryptocurrencies, but they certainly impact the value of tokens.

Bitcoin, in particular, has proven to be highly correlated with growth stocks and magnifies the market's move in general. So, when investors bought growth stocks earlier this week, it's no surprise that Bitcoin was up sharply as well.

What's interesting about the move recently is that Bitcoin hasn't been a hedge to the market or a safe haven to investors. Gold rose as the market fell, which is what many investors would expect Bitcoin to do, but it didn't, falling with the rest of the market.

Why Bitcoin miners were up so much

So, why were Bitcoin miners up more than Bitcoin itself? They tend to be a leveraged bet on the price of Bitcoin for two reasons.

First, Bitcoin is their source of revenue, and when Bitcoin rises, they all make more money. The second impact is the Bitcoin they already hold on the balance sheet. MARA Holdings had 46,000 Bitcoins at its last disclosure, Riot Platforms has 19,223 Bitcoins, and TeraWulf has $274.5 million in cash and Bitcoin.

Higher Bitcoin values quite literally improve their balance sheets.

Leveraged growth in Bitcoin mining

The other big news item for miners this week was Riot Platforms announcing a $100 million credit facility with Coinbase (COIN) backed by Bitcoin. Coinbase has begun making loans to consumers with Bitcoin as backing, but this is the biggest deal it's done with a corporation.

If Riot and others can use Bitcoin as collateral for loans that will fund growth, it could be another catalyst for their businesses. Bitcoin mining hasn't been the easiest business to finance historically so this is welcome news for the industry. Given the high value of Bitcoin on their balance sheets, this could be a great funding source long term.

Bitcoin is the key

Ultimately, the price of Bitcoin is going to determine the fortune of these companies. It's their source of revenue and a huge part of their balance sheets.

Investors also need to keep in mind the leveraged nature of the mining business. Values have gone up sharply as Bitcoin has risen, but if we go through another crypto winter we can see both balance sheets and operations deteriorate quickly. If that kind of risk isn't what you're looking for, Bitcoin is a great alternative.

Source: The Motley Fool

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Manuel

Central Bank

Forex

Former Federal Reserve Governor Kevin Warsh, with whom President Donald Trump is reported to have discussed firing U.S. central bank chief Jerome Powell and installing him in his place, on Friday unleashed a barrage of criticism of the Fed and argued for fundamental changes to how it operates.

While saying he believes in the "operational independence" of the Fed, Warsh told a conference in Washington organized by the Group of Thirty, an international body of financiers and academics, he believes the Fed has gone beyond its remit and undermined its own claims to independence.

He urged the Fed to stop relying on "data dependence" to guide its decisions, and on forward guidance to let the public know where rates may be headed. And he blamed the central bank for aiding the expansion of the U.S. national debt and for allowing inflation to surge after the COVID-19 pandemic.

"Fed claims of independence in bank matters undermine the case for independence in the conduct of monetary policy," Warsh said. "And when the Fed turns away from its creed and tradition, exercising powers that are the province of the Treasury Department, or taking positions on societal issues, it furtherjeopardizes its operational independence in what matters most."

NERVOUS MARKETS

Trump has repeatedly criticized Powell for not cutting interest rates since the Republican president took office in January. His escalating rhetoric against the Fed chief, along with hints he might try to remove him, triggered on Monday a selloff on financial markets that were already under pressure from fears that Trump's sweeping tariffs could send the U.S. economy into a recession.

Trump has since said he has no intention of firing Powell and also appears to have backed off his aggressive trade war with China.

The Wall Street Journal reported that Trump has privately been talking about firing Powell for months, discussing the possibility with Warsh as recently as February. The WSJ said Warsh advised the president to leave Powell as Fed chief until his term expires in May 2026.

Trump's interest in having Warsh, a Republican who served in former President George W. Bush's administration and previously worked for Morgan Stanley, take over the top Fed job dates to his first term as president, when he ended up picking Powell instead to replace Janet Yellen.

The president soon soured on Powell, railing publicly about too-high interest rates. In 2020, he called out Warsh at a White House signing of a China-U.S. trade pact and said he "would have been very happy" to have him heading the Fed instead of Powell.

Warsh, currently a visiting fellow at Stanford University's Hoover Institution and an advisor to the Duquesne Family Office LLC, was a Fed governor from February 2006 to April 2011, leaving about a year before Powell became a governor.

During his tenure at the Fed, Warsh was frequently an advocate for tighter, not easier, monetary policy and criticized the Fed's expansionary balance sheet policy. While stating the Fed must maintain monetary policy independence, Warsh also has argued it should not overstep its financial stability role to rescue banks, and should not expect autonomy for other functions, including regulatory policy or consumer protections.

Treasury Secretary Scott Bessent has said the administration will start interviewing candidates for the top Fed job in the fall.