The European Central Bank (ECB) cut the interest rates yesterday for the fifth time, and pulled the facility deposit rate to 2.75%. The euro reacted by giving a positive reaction to the expected move. But enthusiasm didn’t last beyond ECB Chief Christine Lagarde’s presser, where she reminded investors that growth risks remain ‘tilted to the downside’. Other than that, she repeated the concerns regarding lower confidence, rising geopolitical risks, the ongoing impact of the past rate increases. Her speech hinted that the ECB is inclined to pull more rate hikes from its hat, should the inflationary pressures continue to ease. And regarding inflation: Lagarde said that December uptick – caused by higher energy prices – was expected, but that the impact of Trump tariff’s on European inflation was unclear: on one hand, the tariffs and potential retaliation will inevitably rise consumer prices on both sides of the Atlantic Ocean and heat up the inflationary pressures for everyone. But on the other hand, higher tariffs would hit the European businesses, lead to further economic slowdown and tame price pressures. For now, the faltering growth story overweights. Growth in the euro area couldn’t meet the meagre expectation of 0.1% last quarter: it came in at 0%. The yearly figure fell below 1%. German output fell 0.2% and French output fell 0.1% – and political shenanigans in Germany and France point at continued weakness. Funny enough, the European Stoxx 600 couldn’t care less of what the growth data suggests. The index went straight up to a fresh ATH yesterday on rising hope for more ECB support. The EURUSD took the direction of the south following Lagarde’s presser. The pair sank below 1.04 mark and will likely remain under pressure below the 1.0425/1.0460 area, including the 50-DMA and the minor 23.6% Fibonacci retracement on September to January selloff. Even the significant decline in US GDP growth update and the downside revision in Q4 price pressures couldn’t prevent the EURUSD selloff.
Elsewhere, Trump renewed his pledge to impose 25% tariffs on Canada and Mexico, sending the currencies of both countries lower against the US dollar. The USDCAD rallied to 1.46 and is now challenging the highest levels since 2016 and 2020. The risks are tilted to the downside for the Loonie, as heated trade war with the US could significantly hurt Canada’s economic growth, bring in stronger Bank of Canada (BoC) support and weigh on the Canadian dollar.
Gold at fresh high
Good news is that the US tariffs won’t make America Great Again. The bad news is that it will be lose-lose globally – which is probably why gold prices are on the rise again. The price of an ounce hit a fresh ATH yesterday, backed by a swift move to safety due to the Trump’s tariff threats, the rising geopolitical tensions, the rising US government debt and the fear of a potential tech rout that could lead to a global risk selloff. And the move is probably amplified by uncertainty regarding the expectations around central bank policies and Trump-dependency, EM central bank gold buying – in case the relations with the US get worse, and shifting market positioning. The latest CFTC data shows increased speculative buying since the beginning of January – partly explained by the worries of Trump, high tech valuations and the chatter of a possible sizeable correction. The question is: could gold get more expensive? Yes, it could. A sizeable risk selloff in global financial markets could drive gold to fresh highs. But the rapid rise in speculative long positions hint that we should see a pullback in gold if the AI worries – triggered by DeepSeek – happen to be unfunded.
DeepSeek blocked by hundreds of companies
And speaking of that, five days into the DeepSeek drama, and ‘hundreds of companies’ – especially those linked to governments – are already limiting access to DeepSeek’s search engine highlighting data security concerns for using a Chinese chat bot that could collect and give information to Chinese authorities. Chip and digital information war between China and the West is entering a new phase and cybersecurity firms will likely see the benefits of it. Crowdstrike, Fortinet and Cloudfare hit fresh ATH levels this week and have potential to attract more capital.
Latest earnings
Speaking of record highs, Meta extended gains to a fresh ATH as well following the announcement of stronger-than-expected earnings on Wednesday, while Apple gained 3% in the afterhours trading after releasing better-than-expected Q4 results and a record high Q4 revenue. But wait, it’s not all rosy for Apple. The company’s Chinese sales was a massive 15% miss and the iPhone sales came in 3% below analyst expectations. Tim Cook highlighted that iPhone 16 sales have been stronger in markets where Apple Intelligence is available hinting that there is potential for growth on AI, and the rise in Mac sales and services revenue are encouraging, but Apple looks expensive at the current valuation, and this week’s DeepSeek push and news of partnership with Starlink are not enough to justify a fresh jump.
