Archive

Euro Sentiment Flies Like Icarus

• Resilient data led to hawkish monetary policy guidance, consistent with our bullish Euro view. Fiscal announcements have super-charged that move, so we dropped our call.
• European Commission statements are an upper bound on loosening while Germany’s plans are not yet legislated. Extra defence spending on imports will also damp the Euro.
• Sentiment has flown too high. US trade policy seems set to hit Europe soon, potentially melting sentiment and sending the Euro plummeting back to Earth like Icarus.

By Philip Rush

HEW: Political Blunderbuss

• Shot from Trump’s blunderbuss is hitting sentiment and risk appetite yet the hard data remain resilient. Europe waking up on defence punched markets more in hope than reality, but hawkish inflation and ECB news helped create room to close our bullish call.
• Next week’s US inflation data are the scheduled global highlight, along with the Bank of Canada likely pausing its cutting cycle. We also await UK GDP data confirming resilience inconsistent with the dovish panic at February’s BoE meeting.
• Note: Smartkarma is now the sole distributor of our research, so clients will only receive all other research from Smartkarma (queries to transition@smartkarma.com).

By Philip Rush

Malaysia: Policy Rate Held At 3.0% (Consensus 3.0%) in Mar-25

• Despite global uncertainties, Bank Negara Malaysia maintained the policy rate at 3%, citing sustained economic resilience, robust domestic demand, and investment activity. The 5.1% GDP growth in 2024 supports the decision, although external risks remain.
• Inflationary pressures remain contained, with headline inflation at 1.7% in early 2025, supported by easing global cost conditions and lower commodity prices. However, upside risks persist from domestic policy spillovers and external factors, including financial market volatility and trade policy shifts.
• The ringgit remains influenced by external factors, with narrowing interest rate differentials providing support amid global uncertainty. The MPC’s data-dependent approach ensures monetary policy remains conducive to growth while preserving price stability.

ECB: Meaningfully Less Restrictive

• The ECB’s sixth 25bp deposit rate cut to 2.5% was unsurprising, and its characterisation of policy as meaningfully less restrictive leaned towards our relatively hawkish view.
• Policy rates may already be close to neutral. Looser fiscal policy plans also pressure monetary policy to follow a tighter path than would otherwise have been necessary.
• We still expect the ECB to hold rates in April, which is no longer a controversial call. A final 25bp ECB cut in June remains in our outlook (BoE cuts in May and Fed on hold).

By Philip Rush