While the DeepSeek surge on the financial markets was ultimately moderated fairly quickly thanks to good results from Big Tech, investors also had to deal with a relatively busy week of macroeconomic data and monetary policy meetings. On this last point, the good undermining work of the members of the Fed and the ECB before the meeting made it possible to avoid any surprises.
On the ECB side, weak growth in the eurozone and confidence in the disinflation movement allowed the members of the European institution to act on a fourth consecutive rate cut. As we indicated in our last meeting on Monday, the question will now focus on the neutral rate to be reached while Christine Lagarde confirmed that rates were still in restrictive territory. While the President of the ECB naturally does not want to commit to this point, especially with the uncertainty surrounding Donald Trump's customs duties, a new cut at the next meeting in March is, however, almost certain. Indeed, the ECB must support growth in the Eurozone and the publication of French and German GDP for the fourth quarter of 2024 only confirms this. The two locomotives of the zone have once again disappointed, with a more significant than expected decline in their growth (respectively -0.1% and -0.2% for France and Germany) leading to a stagnation of growth in the Eurozone over the period.
On the Fed side, no more surprises! The American central bank opted for the status quo, after three cuts (for a total of 100 bps), as was widely expected. If the press release appeared slightly more hawkish (deletion of the sentence on the progress of inflation), Jerome Powell wanted to be reassuring during his speech, which helped limit the impact on long-term rates. For FOMC members, there is no immediate risk to growth: although it is gradually slowing (2.3% annualized in Q4 2024 compared to 3.1% in Q3 2024), it remains resilient and above its potential. This slowdown is partly explained by the very negative contribution of inventories while household consumption remains extremely dynamic. Since, at the same time, inflation remains above the 2% target, Jerome Powell therefore has the luxury of waiting, especially since Donald Trump's decisions add a share of uncertainty. The American president, in fact, carried out part of his threats this weekend by imposing customs duties of 25% for Mexico and Canada and 10% for China (in addition to those already existing) in order to push them to fight against illegal immigration and drug exports to the United States. Will this be enough to make these countries give in as it did for Colombia? Initially planned for tomorrow, they would finally only be applied in a month for Mexico after obtaining certain guarantees from D. Trump, in particular on a reinforced Mexican military presence at the border to prevent the passage of illegal migrants and drug trafficking. If the impact of such customs tariffs on growth and inflation is difficult to measure (numerous compensation effects), to what extent is D. Trump prepared to make Americans “suffer”? The coming days will determine to what extent D. Trump wants to go to the end of his trade war or if this is just a vast game of negotiations.
