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Bond giant Pimco says the fallout from President Donald Trump’s trade war could send euro zone interest rates back to “emergency levels” as policymakers seek to cushion the blow to the struggling euro zone economy. I warned you that it’s sexual.
Andrew Boles, chief investment officer for global fixed income at the $2 trillion firm, predicts there will be “multiple games” on tariffs, a policy the next U.S. president will reiterate. He said it was a policy of intimidation.
Boles told the Financial Times that “the worst trade situation is going to be difficult” for Europe. “I tend to think we’re pricing in a fairly smooth path.”
European assets have fallen sharply as markets brace for President Trump’s “America First” policy package. The euro has fallen more than 5% since late September to around $1.06, as investors look for more aggressive interest rate cuts from the European Central Bank to offset the gloomy outlook for the region’s exporters. There is.
Traders in the swap market now say they expect the ECB deposit rate to fall to 1.75% from the current level of 3.25% before the ECB stops cutting rates.
But Boles believes the ECB can go further. “If the outcome is worse than expected, where the ECB raises policy rates further to emergency levels, we could easily factor in a lower final rate,” he said. As a result, Pimco expects the euro to weaken further against the dollar.
Two years ago, the ECB ended eight years of negative interest rates to combat a surge in inflation after the coronavirus pandemic.
Some investors see hedge fund manager Scott Bessent, whom Trump nominated as Treasury secretary, to provide a moderating influence on Trump’s more radical economic policies. This belief triggered the dollar to pull back from its post-election highs.
“I think the market is broadly pricing in a fairly optimistic outcome,” Boles said. “You can see the upside risks, but it’s easy to spot the downside risks.”
Mr Balls said in the UK the economic damage from the global trade war would also leave “plenty of room” for a cut in the so-called final interest rate.
Investors now expect the Bank of England to cut interest rates by three quarter points by the end of next year, taking UK interest rates to 4%.
He said Pimco currently favors British government bonds over U.S. Treasuries on the view that interest rates could fall further.
Although Boles is pessimistic about the risks facing the euro zone economy, he does not expect French government debt, reeling from the recent fiscal crisis that led to the collapse of Michel Barnier’s government, to fall further. He said no.
France’s 10-year borrowing costs recently reached a 12-year high compared to Germany. Boles said the widening gap correctly reflected the worsening outlook for France’s finances.
He also said the lack of “contagion” in other eurozone markets showed the French crisis was unlikely to become a systemic problem in the currency area.
“We had a war, we had a pandemic, we had a series of shocks, we had a radical government in Italy, we had political trauma in France, we had a series of stress tests, and European markets performed very well,” Boles said. said.
