EUR/USD: 10-year US bonds climb sharply

Counterintuitively, the risk appetite barometer that the euro represents, versus the safe haven dollar, was appreciating at its highest level since 10 December, while tensions on the geopolitical front were intensifying, as well as on that of international trade.

First of all, with a freeze on military aid to Ukraine - the US President still not having digested his altercation with his Ukrainian counterpart on Friday in the Oval Office. And, on the other hand, with the implementation of customs duties this Tuesday of 25% for products imported from Canada and Mexico, with the exception of energy. Customs duties on products imported from China are for their part doubled, from 10% to 20%.

Both Ottawa and Beijing have decided to retaliate by announcing customs duties in turn. American customs duties on European imports should follow soon.

"The specter of a full-blown trade war is looming again, threatening to stifle global economic growth just as investors were beginning to regain confidence," comments Stephen Innes of Spi AM.

However, despite the inherent risks of a return of inflation across the Atlantic, the American 10-year was sharply down, with the gap narrowing with its comparison bases in Europe. The 10-year Treasuries even fell below 4.15% at the time of writing. And this after a series of disappointing economic indicators since mid-January.

Romane Ballin, bond manager at Auris Gestion, comments on this relative deterioration. "There are many signs: household consumption expenditure in the PCE indicator declined in January (-0.5% month-on-month in volume) and the Conference Board's consumer confidence in February came out sharply lower at 98.2 (vs. 105.2 in January). The economic dynamics thus appear increasingly fragile: the Atlanta Fed's GDP Now indicator anticipates a contraction in GDP in the first quarter of -1.5% at an annualized rate! Even if a large part of this negative figure comes from the recent deterioration in the trade balance before the officialization of customs duties, it is not excluded that the Fed will ultimately opt for a more accommodating monetary policy than expected... which would not displease a certain D. Trump..."

As a reminder, the United States remains on a series of disappointing economic statistical indicators. The consumer confidence index (Conference Board) in particular fell back below the 100-point mark, supporting the scenario of an inflection point in the American economy, whose health remains very good. But a series of indicators (retail sales, U-Mich, or even PMI barometers) suggest a very slight cooling of the economic machine, which the application of abruptly increased customs duties could seize up further.

On Monday, currency traders took note of the final manufacturing PMI data for February, at 47.5 points, slightly above expectations thanks to a German component that pleasantly surprised at 46.5, although still well below the 50-point mark.

"The latest PMI data, however, highlight the beginnings of an improvement in the economy in the middle of the first quarter: new orders have indeed posted their smallest decline since May 2022 and production has come closer to stabilization. Thus, after almost three years of recession, it seems that the sector could return to very slight growth in the coming months, a trend that should be favored by the rapid formation of a government in Germany, a more stable political scene in France and an agreement on customs tariffs with the United States", comments Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

In the US, the ISM PMI came out at 50.2, very close to the 50-point barrier which, by construction, separates a contraction (below) from an expansion (above) of the sector considered.

In Europe, the ECB will complete a new Governing Council this week. German asset manager DWS expects "the European Central Bank (ECB) to cut its deposit rate by another 25 basis points to 2.50 percent in March, marking its sixth consecutive cut. However, the scope for further rapid cuts appears to be shrinking. Opinions within the ECB are increasingly divided over the number of rate cuts to be expected in the coming months, their pace and whether current monetary policy is already restrictive." The Frankfurt-based central bank will be able to rely on the latest consumer price indices published yesterday. Prices excluding volatile items