Stocks Wobble as Fed's Powell Urges Caution, Euro Dips Ahead of ECB

Economic

Stocks

Summary:

European shares dipped as Powell flagged growth risks and investors awaited the ECB's decision; gold hit a record while trade talks with Japan offered limited relief.

European shares fell on Thursday, while the dollar rose as traders took some heart from trade talks between the U.S. and Japan, and gold hit a new record as Federal Reserve Chair Jerome Powell added a note of caution about the growth outlook.

With a long weekend ahead, investors were reluctant to double down too heavily on the broad-based decline in risk assets this week.

U.S. President Donald Trump unexpectedly joined talks in Washington on Wednesday with a delegation from Japan, saying later that "big progress" had been made in the discussions with lead Japanese negotiator Ryosei Akazawa, but giving no details.

Adding to the cocktail of uncertainty was the European Central Bank's policy meeting later on Thursday. The ECB is widely expected to cut euro zone interest rates, but may not offer much clarity about the effects on growth and inflation from Trump's tariffs.

The STOXX 600 fell 0.4%, as construction and healthcare shares dropped, but still headed for a 4.2% gain this week, while the euro , which is not far off three-year highs against the dollar, eased 0.25% to $1.1372.

"As the dust is starting to settle, there are concerns regarding that stagflationary outlook that Powell warned about and I think there's potential for the ECB to warn about a stagflationary outlook for the euro zone as well," City Index strategist Fiona Cincotta said.

"Those comments from Powell are quite stark," she said.

Powell, who was speaking for the first time since Trump last week paused some of his barrage of tariffs, said the Fed would wait for more data on where the economy was headed before making any changes to interest rates.

But he also cautioned that Trump's tariff policies risked pushing inflation and employment further from the central bank's goals.

"Powell is between a rock and a hard place," said Tom Graff, chief investment officer at Facet Wealth. "The Fed can't act proactively to stem any potential economic weakness, given that tariffs are likely to also cause inflation."

U.S. stock futures rose, suggesting a recovery after Wednesday's selloff that pushed the S&P 500 down 2.2% and the Nasdaq down more than 3%. Futures on the Nasdaq were up 1.2%, while those on the S&P were up 1%, as technology shares got a boost from forecast-busting earnings from Taiwan's TSMC.

The ECB is all but certain to cut interest rates for the seventh time in a row today as it aims to shore up the European economy after

Results from TSMC, the world's largest contract chipmaker, followed warnings from bellwethers Nvidia and ASML that rattled investors.

Dutch company ASML said tariffs were increasing uncertainty around its outlook for 2025 and 2026, while AI pioneer Nvidia warned of a $5.5-billion hit after Washington restricted exports of its AI processor tailored for China.

The dollar has been a major casualty from the uncertainty stemming from both the rollout of the tariffs and their impact on economic growth. Investors have ditched U.S. stocks and bonds in the last couple of weeks.

Against a basket of six other currencies, the dollar has fallen to its lowest in three years this month. Treasuries have been relatively stable. The benchmark U.S. 10-year Treasury yield was up 4 basis points at 4.32%.

The yen touched a seven-month high earlier in the session before reversing to trade 0.8% weaker at 142.945 per dollar after Akazawa said foreign exchange had not been discussed at the trade talks in Washington.

In commodities, gold racked up yet another record high, going as high as $3,357.40 per ounce as safe-haven flows and an exodus from the dollar gathered pace.

Oil prices rose on the prospect of tighter supply, leaving Brent crude futures up 0.7% at $66.33 a barrel.

Source: Reuters

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Warren Takunda

Economic

The Pound to Dollar exchange rate remained buoyant near six-month highs on Thursday, while GBP/EUR steadied near 18-month lows, with Sterling helped overall by a confluence of progress in trade talks with the US, a weaker US Dollar and earlier management of the Chinese Renminbi.

GBP/USD was trading near its highest since October 02 in European morning trade after being helped on Wednesday by reports that a tariff agreement with the US may be only three weeks away, broad losses for the US Dollar and constructive central parity fixes for GBP/CNY rate in the first half of the week.

“The rates market is pricing in a very tiny chance of greater than 25bps [rate cut from the Bank of England] on May 8. GBP/USD is still quite elevated and finally outperforming the EUR/USD this week,” says Brad Bechtel, global head of FX at Jefferies, in Wednesday market commentary.

“Perhaps the market is getting excited that the UK will have a trade deal before the EU. The EU vs. US negotiations are likely to be rockier than UK and US but not nearly as bad as US and China. Sounds like a deal on the UK could happen quite soon,” he adds, and suggests "its mostly GBP pushing the DXY lower now." Pound Sterling Aided by US Trade Talks, Weaker Dollar, Renminbi Management_1

Pound Sterling Aided by US Trade Talks, Weaker Dollar, Renminbi Management_1

Above: GBP/USD at daily intervals with Fibonacci retracements and selected moving averages highlighting possible areas of technical support. Click for closer inspection.

GBP/EUR steadied above its recent 18-month lows on Thursday, meanwhile, having fallen alongside the US Dollar on Wednesday when currencies of current account surplus jurisdictions outperformed, with much now set to be determined by an imminent European Central Bank interest rate decision.“In the current state of things, the FX market is not looking much at short-term rate differentials. If it did, EUR/USD should be trading well below 1.10,” says Francesco Pesole, a strategist at ING.

“While we cannot exclude the possibility that markets can take the opportunity of an ECB cut to take profit in crowded EUR longs, the news from the US is still hitting the dollar, and the highly liquid euro remains in a prime position to benefit from the rotation,” he adds in Thursday market commentary.

GBP/EUR unwound all of its prior rally on Wednesday but was supported by tightened limits enforced in EUR/CNY, and EUR/USD, from Beijing. These prevented EUR/CNY rising above 8.3424 and led to suppressive pushback around 1.1387 in EUR/USD, levels which rose to 8.4119 and 1.1513, respectively, on Thursday. Pound Sterling Aided by US Trade Talks, Weaker Dollar, Renminbi Management_2

Pound Sterling Aided by US Trade Talks, Weaker Dollar, Renminbi Management_2

Above: GBP/EUR at daily intervals with ICE US Dollar Index.

Source: Poundsterlinglive

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Glendon

Forex

Economic

President Donald Trump on Thursday again called for the Federal Reserve to lower rates and even hinted at the "termination" of Chairman Jerome Powell.

In a Truth Social post, Trump said:

"The ECB is expected to cut interest rates for the 7th time, and yet, 'Too Late' Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete 'mess!' Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS. Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now. Powell's termination cannot come fast enough!"

Indeed, the European Central Bank has been cutting rates as it tries to boost growth in the region. The ECB is expected to lower rates again later on Thursday.

The post comes a day after Powell delivered a speech at the Economic Club of Chicago in which he noted that the administration's tariffs put the central bank in a tricky spot as it decides whether to tame inflation or boost growth.

"If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close," Powell said. Those comments contributed to a steep sell-off on Wednesday.

This isn't the first time Trump has criticized Powell's approach to U.S. monetary policy. Trump posted on April 4, two days after the administration's "Liberation Day" tariff announcement, it would be "a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always 'late,' but he could now change his image, and quickly."

However, it's the first time Trump has explicitly called for Powell's firing. Powell has also said the president doesn't have the power to fire him, noting that it's "not permitted under the law."

Powell's term as Fed chairman ends in May 2026.

Source: CNBC

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Warren Takunda

Economic

A few weeks on from Washington’s first wave of tariff announcements, international trade data points to a subdued outlook, with key indicators signalling serious risk of trade diversion to Europe as a result of the disruption in trade between US and China, according to the World Trade Organization (WTO).

The WTO's “Global trade outlook” released on Wednesday found decoupling Chinese and US economies would lead to an 81% plunge of merchandise trade between both countries in 2025 and 91% without the recent exemptions granted by the US administration for products such as smartphones.

As a consequence, the report foresees an increase of 6% of Chinese exports to Europe. But Europe, hit too by US tariffs, will also look for other markets for its exports, the WTO says.

“This is a two-way street, there will also be some European exports diverted to other economies,” WTO Chief Economist Ralph Ossa claimed, adding: “Think about the high tariffs that are in place on motor vehicles for example. This is a way through which these tensions could potentially propagate.”

The US has imposed 25% tariffs on EU cars, steel and aluminium. US tariffs of 10% apply also to other EU exports.

The tensions between China and the US has been escalating with Chinese exports to the US being hit with 145% tariffs and US goods to China facing 125% tariffs.

More generally, Chinese merchandise exports are projected to rise by 4% to 9% across all regions outside North America, according to the report’s forecasts.

Lessons will have to be learned, WTO Director-General Ngozi Okonjo-Iweala said about the world trade disruptions as she announced a decline by 0.2% of the volume of world merchandise trade in 2025, which amounts to nearly three percentage points lower than expected.

“One of the clearest lessons of the COVID-19 crisis is the importance of diversifying sources of supply. Today’s trade tensions remind us that we must also diversify demand,” she said, adding: “Overconcentration, whether it is where we buy from, or where we sell to, leads to over dependence, making economies more vulnerable to shocks and fostering a sense of unfair burden-sharing.”

The report said that the decoupling between US and Chinese economies will contribute to a broad fragmentation of the global economy along geopolitical lines in two isolated blocs.

It will also have an impact on the world GDP. “Our estimate is that global world GDP would be lowered by nearly 7% in the long term,” Okonjo-Iweala said.

Source: Euronews

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Michelle

Economic

Forex

Central European currencies held stable on Thursday while stocks firmed as markets were looking ahead to a rate meeting by the European Central Bank later in the day.

The ECB is expected to cut interest rates for the seventh time in a year on Thursday, looking to prop up an already struggling economy that will take a large hit fromU.S. tariffs.

While U.S. PresidentDonald Trumphas paused most of the heftiest tariffs, many remain in place and volatility in financial markets has already done damage.

"CEE currencies will be looking to the ECB meeting today, but that should confirm the current market stance and not show much change for CEE," ING wrote in a note.

"Still, we believe the ECB will be an important benchmark for CEE central banks as they face U.S. tariffs and the deteriorating economic outlook," ING said.

Hungary's forintwas little moved, trading at 407.65 per euro, moving away from a near three-month-low hit on Monday.

"The forint has stabilised. The EUR/HUF exchange rate is trading below the short-term resistance level of 408.50, while the next significant support is seen at 405. ... however, this afternoon’s ECB interest rate decision could stir up fresh movements in the currency market," brokerage Equilor wrote.

The forint was helped this week by comments from incoming Central Bank Deputy Governor Zoltan Kurali who said on Tuesday that the bank must maintain a positive real interest rate to ensure both financial market and price stability.

The Polish zlotywas stable, halting losses after slipping to a four-and-a-half month low in the previous session. The currency traded at 4.2815 versus the euro.

"The EUR/PLN rate may move in the range of 4.26-4.30 in the near future. The day will be dominated by the meeting of the European Central Bank, and the expected cut will support market rates at low levels," Bank Millennium wrote.

Earlier this month, Poland's central bank governor Adam Glapinski said interest rates could be cut as soon as May if incoming economic data supported the easing of inflation pressures. Borrowing costs in Poland have remained unchanged since October 2023.

The Czech crownwas a touch weaker, trading 0.05% down versus the euro at 25.03.

Stocks were higher, with Warsaw's equitiesleading gains as the index added 1.4%. Budapestwas up 0.1% while Pragueadded 0.3%.

Source: TradingView

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Warren Takunda

Economic

Asian shares mostly rose Thursday, despite the continued fretting over President Donald Trump’s trade war, with all eyes on negotiations that just began between the administration and Japan.

Japan’s benchmark Nikkei 225 gained 1.3% to 34,343.11 in afternoon trading.

Honda stock price jumped 2.1% after the Japanese automaker said it plans to move its production of the five-door Civic hybrid electric vehicles for the U.S. market from Japan to the company’s plant in Indiana.

Honda Motor Co. didn’t say the move was in response to Trump’s tariff policies but stressed it moves production to where there is demand. Production of the U.S.-bound five-door Civic HEV began at the Yorii plant outside Tokyo in February. So far 3,000 vehicles have been produced there for the U.S. market.

Trump joined Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick in the talks with the Japanese delegation in Washington. “Hopefully something can be worked out which is good (GREAT!) for Japan and the USA!” Trump wrote in a social media post ahead of the meeting.

Australia’s S&P/ASX 200 gained 0.7% to 7,813.00. South Korea’s Kospi edged up 1.0% to 2,471.51. Hong Kong’s Hang Seng added 1.0% to 21,271.39, while the Shanghai Composite was little changed, slipping less than 0.1% to 3,274.68.

U.S. stocks fell Wednesday after Nvidia warned new restrictions on exports to China will chisel billions of dollars off its results. The S&P 500 sank 2.2% after falling as much as 3.3% earlier. Such an amount would have vied for one of its worst losses in years before the historic, chaotic swings that have upended Wall Street in recent weeks.

The Dow Jones Industrial Average dropped 699 points, or 1.7%, and the Nasdaq composite sank a market-leading 3.1%.

Many investors are bracing for a possible recession because of Trump’s tariffs, which he has said he hopes will bring manufacturing jobs back to the United States and trim how much more it imports from other countries than it exports. A survey of global fund managers by Bank of America found expectations for recession are at the fourth-highest level in the last 20 years.

The World Trade Organization said Wednesday it expects tariffs to cause a 0.2% decline in the volume of world merchandise trade for 2025. That’s if the tariff situation remains as it was on Monday. Trade could shrink by 1.5% this year if conditions worsen, the WTO said.

All told, the S&P 500 fell 120.93 points to 5,275.70. The Dow Jones Industrial Average dropped 699.57 to 39,669.39, and the Nasdaq composite sank 516.01 to 16,307.16.

Treasury yields eased in the bond market, taking a leg lower following the comments from the Fed’s chair. The yield on the 10-year Treasury fell to 4.28% from 4.35% late Tuesday and from 4.48% at the end of last week.

In energy trading, benchmark U.S. crude rose 87 cents to $63.34 a barrel. Brent crude, the international standard, gained 75 cents to $66.60 a barrel.

In currency trading, the U.S. dollar rose to 142.74 Japanese yen from 141.74 yen. The euro cost $1.1358, down from $1.1401.

Source: AP

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Warren Takunda

Economic

London stocks fell in early trade on Thursday after Federal Reserve chair Jerome Powell warned that Trump’s tariffs could cause a spike in inflation.

At 0900 BST, the FTSE 100 was down 0.4% at 8,240.04.

In a speech on Wednesday at the Economic Club of Chicago, Powell said that Trump’s tariff regime was "significantly larger than anticipated".

"The same is likely to be true of the economic effects, which will include higher inflation and slower growth," he said.

"We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension."

Steve Clayton, head of equity funds at Hargreaves Lansdown, said: "Federal Reserve Chairman, Jerome Powell unnerved markets last night, warning of the potential impacts of current policy actions upon inflation and growth in the USA. He indicated that the Fed would probably put its anti-inflation mandate ahead of the target to see full employment in the USA if price pressures ticked higher.

"That led to selling on Wall Street, with the tech sector bearing the brunt."

Clayton said tariffs continue to make the headlines after Donald Trump claimed that "big progress" had been made in talks with Japanese negotiators.

"No details were given. Japan has strong links with the major US defence contractors and some US commentators are suggesting that tariff concessions may be granted if Japan ups its spending on US arms," he said. "Asian markets took the news as a reason to recover some of the previous session’s losses, with Japan’s Nikkei index posting gains of over 1%.

"Investors will have to become accustomed to information deficits under this most transactional of Presidents. Trump’s tactics so far have been to claim that injustices have been inflicted upon America and that punishments will be delivered, unless the offending nations bring something shiny to the table. With negotiations happening behind closed doors, investors are left guessing. But with most of the Reciprocal Tariffs stayed for three months, the window of uncertainty is not that long."

Looking ahead to the rest of the day, investors were eyeing the latest policy announcement from the European Central Bank, which is widely expected to announce a 25 basis points rate cut.

In equity markets, Fresnillo, Rolls-Royce, Unite, Jupiter Fund Management, Weir Group and Travis Perkins all lost ground as they traded without entitlement to the dividend.

On the upside, Sainsbury’s rallied as it said full-year underlying pre-tax profit rose 8.6% to £761m but also cautioned it does not expect any profit growth in the next year.

Tesco also gained.

Dunelm shot higher as the homeware retailer said it was on track to meet consensus expectations for full-year profit as it reported a jump in third-quarter sales.

Pest control firm Rentokil nudged up as IT reported a rise in first-quarter revenue despite a softer performance from its North America business.

Deliveroo advanced as it hailed a strong first-quarter performance, with gross transaction value 9% higher and order growth of 7%.