Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 01/07/25
Asset performance in Q2 was closely linked to trade policies, with global equity markets rallying since the 90-day pause on tariffs on April 9th
Expectations that the Federal Reserve will resume interest rate cuts, as well as the ceasefire between Israel and Iran supported risk appetite, with global equity markets posting solid gains and spread products (corporate and sovereign) narrowing further. The 10-Year GGB-Bund government bond spread declined below the 70 bps threshold, while the S&P500 overperformed, up by +3.4% wow, reclaiming record highs (6173).
Sector-wise, US Information Technology has led the recovery (+40% since April 8th), in a big part due to NVIDIA. The latter rose by +9.7% in the past week and has been up by +64% since April 8th, returning to record highs, as investors’ concerns regarding its growth prospects and its overall leadership in the Artificial Intelligence (AI) field have eased.
The US Dollar remains under pressure, partly due to narrowing interest rate differentials, with the 10-Year US Treasury vs Bund spread declining by 23 bps to 163 bps. In trade-weighted terms (DXY), the dollar index declined by -1.3% wow (-10% year-to-date), also negatively affected by policy unpredictability. Recall that the postponement of “reciprocal” US tariffs is set to expire on July 8th. Against the euro, the US dollar has depreciated to a four year low of EUR/USD 1.1809.
Higher tariff rates and trade uncertainty have weighed on confidence, with US private consumption posting a meagre +0.5% qoq saar gain in Q1:2025 versus an average of +3.1% qoq saar during 2023 and 2024 and with an uninspiring momentum in Q2, so far. Attention now turns to June’s US labor market report, with job creation expected to have decelerated, albeit at still healthy levels (non-farm payrolls: +110k from +139k in May).
Regarding fiscal policy, the “One Big Beautiful Bill Act” (OBBBA) has made its way to the main floor of the Senate. Further deliberations and modifications are likely, given also that the OBBBA in its current form appears to be breaching the House of Representatives reconciliation instructions.
According to the Congressional Budget Office, the OBBBA would add c. $3.25 tn (11% of GDP) to the primary federal deficit cumulatively in 2025 – 2034 and with further burdens due to higher borrowing costs being likely, exacerbating the already fragile fiscal dynamics. The federal fiscal deficit stood at -6.4% of GDP in fiscal year 2024, versus -3.2% on average since 1962, with the debt at 98% of GDP.
On the other side of the Atlantic, Germany’s plans to utilize the fiscal space freed earlier in 2025 via the amendment of the constitutional “debt brake” rule combined with the creation of a €500 bn (12% of GDP) extrabudgetary “Special Fund for Infrastructure and Climate Neutrality”, are taking shape.
The draft Budget for 2025 and Financial Plan for 2026/2029, have entered deliberation in the legislature. A sharp increase in the budget deficit is envisaged, from -1.2% of GDP in 2024 to -3.2% in 2025 and to -3.7% from 2026 to 2029 (aop), with the general government debt at 62.5% of GDP.
Regular defense spending is envisaged to rise to 3.5% of GDP by 2029 from c. 2% currently, meeting the recently adopted new NATO target, sooner than required (2035). Long-term borrowing costs appear contained for now, with the Bund 10-year yield at a range of 2.45%-2.65% from a peak of 2.9% in early March, implying that better growth prospects may partially offset deficit creation.
Expectations that the Federal Reserve will resume interest rate cuts, as well as the ceasefire between Israel and Iran supported risk appetite, with global equity markets posting solid gains and spread products (corporate and sovereign) narrowing further. The 10-Year GGB-Bund government bond spread declined below the 70 bps threshold, while the S&P500 overperformed, up by +3.4% wow, reclaiming record highs (6173).
Sector-wise, US Information Technology has led the recovery (+40% since April 8th), in a big part due to NVIDIA. The latter rose by +9.7% in the past week and has been up by +64% since April 8th, returning to record highs, as investors’ concerns regarding its growth prospects and its overall leadership in the Artificial Intelligence (AI) field have eased.
The US Dollar remains under pressure, partly due to narrowing interest rate differentials, with the 10-Year US Treasury vs Bund spread declining by 23 bps to 163 bps. In trade-weighted terms (DXY), the dollar index declined by -1.3% wow (-10% year-to-date), also negatively affected by policy unpredictability. Recall that the postponement of “reciprocal” US tariffs is set to expire on July 8th. Against the euro, the US dollar has depreciated to a four year low of EUR/USD 1.1809.
Higher tariff rates and trade uncertainty have weighed on confidence, with US private consumption posting a meagre +0.5% qoq saar gain in Q1:2025 versus an average of +3.1% qoq saar during 2023 and 2024 and with an uninspiring momentum in Q2, so far. Attention now turns to June’s US labor market report, with job creation expected to have decelerated, albeit at still healthy levels (non-farm payrolls: +110k from +139k in May).
Regarding fiscal policy, the “One Big Beautiful Bill Act” (OBBBA) has made its way to the main floor of the Senate. Further deliberations and modifications are likely, given also that the OBBBA in its current form appears to be breaching the House of Representatives reconciliation instructions.
According to the Congressional Budget Office, the OBBBA would add c. $3.25 tn (11% of GDP) to the primary federal deficit cumulatively in 2025 – 2034 and with further burdens due to higher borrowing costs being likely, exacerbating the already fragile fiscal dynamics. The federal fiscal deficit stood at -6.4% of GDP in fiscal year 2024, versus -3.2% on average since 1962, with the debt at 98% of GDP.
On the other side of the Atlantic, Germany’s plans to utilize the fiscal space freed earlier in 2025 via the amendment of the constitutional “debt brake” rule combined with the creation of a €500 bn (12% of GDP) extrabudgetary “Special Fund for Infrastructure and Climate Neutrality”, are taking shape.
The draft Budget for 2025 and Financial Plan for 2026/2029, have entered deliberation in the legislature. A sharp increase in the budget deficit is envisaged, from -1.2% of GDP in 2024 to -3.2% in 2025 and to -3.7% from 2026 to 2029 (aop), with the general government debt at 62.5% of GDP.
Regular defense spending is envisaged to rise to 3.5% of GDP by 2029 from c. 2% currently, meeting the recently adopted new NATO target, sooner than required (2035). Long-term borrowing costs appear contained for now, with the Bund 10-year yield at a range of 2.45%-2.65% from a peak of 2.9% in early March, implying that better growth prospects may partially offset deficit creation.