Trump Renews Tariff Threats for Europe
AUD
The AUD opens mainly up against the majors after the latest twists and turns in the global trade war, which caused the USD and EUR to slide over the weekend with President Trump recommending a 50% tariff on the EU starting June 1st. Trump commented “the European Union, which was formed for the primary purpose of taking advantage of the United States on Trade, has been very difficult to deal with”. A mixed session for Asian equities on Friday saw the Nikkei gain +0.5%, Hang Seng +0.2%, and Shenzhen -0.8%. The ASX 200 modestly improved +0.2% as energy and IT led gains, both over +1%. Commodities were mainly up, with the biggest movers being Copper up 3.9% and Gold up 1.9%. Locally, the main data piece to watch for in the week ahead is the Local CPI y/y due on Wednesday, which is expected to decrease slightly by 0.1% from 2.5% to 2.4%. A significant deviation from expectations could sway market sentiment and potentially influence the RBA's stance on interest rates.
USD
The AUDUSD opens up at 0.6500, up 1 cent Friday's open, mainly driven by USD weakness following renewed tariff threats from President Donald Trump on the EU (see AUD section above). This reminds us that the tariff wars are not yet resolved and to be prepared for market volatility as the 90 day delay of the original tariff announcements draws closer, especially for countries which are yet to make a deal with the new US administration. US equities were under the pump as one would expect; the Nasdaq closed -1%, the S&P 500 -0.7%, and the Dow Jones -0.6%. Looking forward this week, Thursday night's Core PCE Price Index will be the headline for US data, which is the US Fed Reserve's preferred measure of inflation and will shape the board's interest rate path.
EUR
The AUDEUR opens up at 0.5716, about 25 basis points from Friday's open. This comes mainly from ongoing trade war tensions with the US. Yesterday, German Final CPI m/m printed in line with the forecast of 0.4%. European equities were also mixed at the open; the DAX and CAC were both down -0.3%. The EU has responded to the US tariff threats by emphasizing the need for trade relations to be based on "mutual respect, not threats," and has reiterated its commitment to a deal while also preparing for potential retaliatory measures. While the EU has offered concessions, including a large trade deal and cooperation on various issues, the US administration has expressed dissatisfaction with the pace and nature of negotiations. Not much out in terms of data, although we do have President Lagarde speaking overnight.
GBP
The AUDGBP opens up fairly flat at 0.4802 despite UK retail sales coming in much better than expected. The figure was predicted to come in at 0.3% although printed at 1.2%. While many economists viewed the slight rise in consumer confidence in May as a good sign for economic growth in the next quarter, others questioned this optimism. They pointed out that overall sentiment remains below pre-pandemic levels, suggesting that consumer spending might no longer be as closely tied to confidence as it once was. The FTSE was down -0.2%. Looking ahead, the week looks fairly quiet in terms of upcoming news.
NZD
The AUDNZD opens flat at 1.0848. This week, the RBNZ is widely expected to reduce the OCR by 25bps to 3.25%. The RBNZ will also release an updated set of forecasts in the SoMP (Statement of Monetary Policy). The RBNZ had flagged in April (prior to the China-US trade deal) that there were downside risks to the outlook for economic activity and inflation, suggesting we may see downward revisions to GDP and inflation forecasts.