MARKET WRAPS

Watch For:

ECB rate decision; EU retail trade; trading updates from Schroders, Merck, Deutsche Post, Reckitt Benckiser Group, Vivendi, Deutsche Lufthansa, Salvatore Ferragamo, Zalando, Bouygues, Solvay, Norwegian Air Shuttle, Admiral Group, ITV, Harbour Energy, Universal Music Group, Galderma

Opening Call:

European stock futures were higher, in tandem with the rise in Asian stock benchmarks. The dollar weakened and Treasury yields were mostly higher; oil futures and gold gained.

Equities:

European stock futures were tracking higher early Thursday ahead of the European Central Bank rate decision and positive sentiment following U.S. auto tariff relief.

The ECB is expected to reduce its benchmark lending rate by a quarter-point, the sixth reduction since it started lowering borrowing costs in June. Markets will focus on any hints as to whether the ECB still considers its policy as restrictive, and at potential comments about Germany's fiscal loosening plans.

U.S. stocks rebounded on Wednesday after the White House announced a one-month tariff reprieve for auto imports from Mexico and Canada, suggesting that President Trump is open to additional exemptions on import taxes on America's two largest trading partners.

Still, traders are bracing for more volatility ahead, as a mounting pile of data suggests consumers' inflation expectations are climbing and the U.S. economy is slowing.

Sløk, of Apollo Global Management, said, "From a Fed perspective, the biggest problem is that tariffs increase prices and hence inflation." "That is why a trade war, by definition, is a stagflation shock: Higher prices and lower sales. If tariffs on Canada and Mexico continue for several months, then the Fed will focus on the rising unemployment rate and start cutting rates soon."

Forex:

The euro could rise further against the dollar as investors shift their focus toward the potential negative implications of President Trump's trade tariffs for the U.S. economy, Convera strategist George Vessey said. Previously, the dollar was supported by expectations that tariffs could lift inflation and limit Federal Reserve interest-rate cuts, while the euro faced a hit from U.S. tariffs threats against the EU.

However, the attention has switched to U.S. growth concerns, boosting Fed rate-cut bets, he said. Meanwhile, EU plans to increase defense spending could raise economic growth prospects and reduce European Central Bank rate-cut expectations, he added.

Bonds:

The risk premia, or credit spreads, on euro bank bonds is widening due to increased market volatility, ABN Amro's Joost Beaumont said. "We expect spreads to continue to widen in the coming week, while volatility will also be name of the game," he says.

Covered bond spreads nonetheless remain relatively tight, providing investors a good opportunity to buy, Beaumont said.

"So far, covered bond spreads have remained rather stable since the start of the market turbulence, proving again their crisis-proof nature."

Energy:

Oil rose on a likely technical recovery following a fourth straight session of declines on Wednesday. "Oil prices are facing a challenging scenario, largely impacted by trade tensions between the United States and its key partners," Pepperstone's Quasar Elizundia said.

"The uncertainty caused by the imposition of tariffs and corresponding retaliatory measures is eroding global confidence, potentially slowing down global economic activity and, in turn, weakening oil demand," the research strategist added.

Metals:

Gold was higher early Thursday. Prices remain supported as investors continue to turn to the haven asset as a hedge against uncertainty, given the continued global trade tensions, said Bas Kooijman, CEO and asset manager of DHF Capital S.A.

Geopolitical risks around the Russia-Ukraine conflict could fuel risk-off sentiment and sustain gold's upward price trend in the short term, Kooijman adds.

However, if trade developments lead to inflationary pressures, it could prompt the Fed to remain cautious and hold rates for longer, which could limit gold's rally.

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Base metals were broadly higher in Asian trading. Markets will likely be driven more by volatility than a clear trend due to significant uncertainty around trade tensions, the Sucden Financial team said.

This could cap gains, especially after copper and aluminum prices were already bolstered by reports that Trump may consider tariff relief for Mexico and Canada, the two countries responsible for the majority of U.S. imports of these two metals, Sucden Financial added.

TODAY'S TOP HEADLINES

White House Grants One-Month Tariff Exemption for Automakers

WASHINGTON-Automakers will get a one-month reprieve from tariffs on Mexico and Canada for cars that comply with a free-trade agreement between those two nations and the U.S., the White House said Wednesday.

The move follows a request from the heads of Ford Motor, General Motors and Stellantis, White House press secretary Karoline Leavitt said, and would apply to autos imported through the U.S.-Mexico-Canada Agreement, or USMCA, the successor trade deal to 1994's North American Free Trade Agreement.

Germany, Once a Beacon of Frugality, Jolts Europe With Planned Spending Splurge

BERLIN-Few changes prompted by President Trump's second term could be as consequential for Europe as Germany shedding fiscal prudence to turbocharge its military and retool its economy.

In a hastily convened press conference in Berlin late Tuesday, Friedrich Merz, the man in line to become Germany's next chancellor, announced a break with a position that had governed the country's relations with its European partners for decades.

ECB Expected to Cut Rates as Trump Tariffs Loom Over Global Economy

As stock markets start to worry about prospects for economic growth amid the latest flurry of President Donald Trump's tariffs, Europe is already on the front foot.

The European Central Bank is expected to reduce its benchmark lending rate by a quarter-point on Thursday, the sixth reduction since it started lowering borrowing costs in June. Traders see a 98% chance of such a move, according to LSEG data, which will bring the deposit rate to 2.5% from 4% when the cuts began. The Federal Reserve, by contrast, lowered its main rate by 1 point over three meetings at the end of last year and then paused.

Rio Tinto Commits to $1.8 Billion Mine Extension in Australia's Pilbara

SYDNEY-Iron-ore giant Rio Tinto will invest $1.8 billion to develop a satellite ore-body development in Australia's mineral-rich Pilbara region.

The world's second-biggest miner by market value said Thursday that it received all necessary approvals for the Brockman Syncline 1 mine project, about 5 miles north of its existing Brockman 4 project in the West Pilbara.

Russia Is Chasing a Deal to Keep Its Military Bases in Syria

Days before the fall of President Bashar al-Assad, Russia said the Syrian rebels advancing on Damascus were terrorists. Now, with those rebels in power, Moscow senses an opportunity to both expand its economic footprint in Syria and hold on to its military bases there.

It is a surprising rapprochement. Russian leader Vladimir Putin was instrumental in preserving the Assad regime through a decadelong civil war. The bases Russia built along Syria's coast enabled it to project power into the Mediterranean and Africa as well as hammering rebel targets, including positions held by Syria's new rulers, Hayat Tahrir al-Sham. After Assad fled the country, he sought refuge in Moscow.

BOE Governor Sees 'Substantial' Threat to Global Economy From Higher Tariffs

A significant shift is under way in U.S. economic policy that poses a threat to global economic growth, Bank of England Governor Andrew Bailey said Wednesday.

Bailey spoke to lawmakers a day after U.S. President Donald Trump pressed ahead with higher tariffs on imports from Canada, Mexico and China. Trump has also threatened to impose tariffs on imports from the European Union.

With Trump's tariffs paused, 'Big Three' automakers may race to build inventories

What might the "Big Three" U.S. automakers do now that they have a reprieve from tariffs imposed on Canadian and Mexican products?

The answer for Ford Motor Co. F, General Motors Co. GM and Stellantis NV STLA is likely to be build up inventories as fast as they can, said Jessica Caldwell, an analyst with Edmunds.com.

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Expected Major Events for Thursday

06:45/SWI: Feb Unemployment

07:00/ROM: Jan Retail trade

07:00/SWE: 4Q Balance of Payments

07:00/DEN: Jan Industrial production & new orders

07:30/HUN: Jan Retail Sales

07:30/HUN: Jan Preliminary Industrial Production

08:00/CZE: 4Q Wages

08:00/SVK: Jan Internal trade, incl Wholesale & Retail

09:00/ICE: Feb External trade, preliminary figures

09:30/UK: Feb S&P Global UK Construction PMI

10:00/CYP: Feb Registered Unemployed

10:00/EU: Jan Retail trade

10:00/CYP: Feb CPI

11:00/TUR: Turkish interest rate decision

11:00/IRL: 4Q GDP

11:00/IRL: 4Q Balance of Payments

13:15/EU: ECB interest rate announcement

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March 06, 2025 00:00 ET (05:00 GMT)

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