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• Japan in focus, with fiscal stimulus and BoJ rate cut both expected
• European carmakers on the rise
• Weak ADP and Hassett rumours lead dollar lower

European markets have kicked off the day on a positive footing, coming off the back of an Asian session that has been dominated by stories out of Japan. The circa 2% gain for the Nikkei 225 came amid claims from BoJ Governor Ueda that the government’s economic stimulus plans will positively impact economic growth, although it would also have inflationary effects. As such, the BoJ stand ready to raise rates this month, with the Government seemingly willing to tolerate the move. With Japanese 30-year bonds on the rise following a strong 10-year auction, stocks in the region are pushing higher after recent jitters.

In Europe, the carmakers are leading the push higher, with strong gains across the likes of BMW, Daimler, Porsche, Mercedes, Volkswagen, and Stellantis. This comes off the back of the news that Donald Trump could seek to reduce fuel economy standards implemented by Joe Biden, aiming at making it easier for automakers to sell fossil fuel cars. While this is a move aimed at lowering costs for US consumers, it also provides a shot in the arm for European carmakers that have struggled to dominate the EV space given rampant Chinese competition.

The dollar has dropped into the lowest level on over a month, as traders gear up for a likely rate cut from the Fed next week. Yesterday’s ADP payrolls release certainly seemed to solidify claims that we will see the FOMC act, with the -32k figure marking the biggest one-month decline since March 2023. Notably, it is a decline that is entirely based around small businesses, which saw a 120k drop while medium (+51k) and large (39k) companies increased employment. Part of the weakness we have seen around the dollar comes from the growing confidence that Kevin Hassett will take on the role as Fed chair in May. The prospect of a chair that will spend his time trying to please the President brings the independence of the FOMC into question. Notably, we are seeing a steepening of the yield curve, where 2-year yields fall relative to 30-year yields as rising rate cut expectations are countered by fears of economic instability as the Fed drive up inflation through an aggressing easing policy under Hassett.

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