Germany's Bundestag Debates €500B Infrastructure Plan Amid Debt Rule Challenges

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.4250-1.4500

Euro                 1.5500-1.5740

Sterling            1.8500-1.8730

WTI Oil (opening level) $67.52

The CAD/USD is opening at 1.4375 ( 0.6956 )

·    The Canadian dollar advanced following the Bank of Canada's expected quarter-point rate cut, with the bank emphasising risks to the outlook stemming from US tariff risks. USDCAD fell 0.5% to 1.4359, with the loonie leading G-10 gains, but rebounded to near 1.4400 as risk sentiment faltered overnight. The Bank of Canada noted, "Heightened trade tensions and tariffs imposed by the United States will likely slow economic activity and increase inflationary pressures in Canada."

·    USDJPY saw renewed weakness following a two-day correction with the JPY strengthening after the Bank of Japan Governor Kazuo Ueda showed little concern over rising bond yields, saying he expects real wages to improve. The Trump administration yesterday railed against Japan’s “700% rice tariff”.

·    EURUSD fell from a five-month high back below 1.0900 after the European Commission launched countermeasures against US tariffs on EU steel and aluminium and Trump in turn said he would retaliate further, though not citing specifics. Trump also weighed in against Ireland. A key session for the reconvened German Bundestag kicks off today, as noted above.

Headlines

·    Germany’s Bundestag will reconvene today to discuss the EUR 500 billion infrastructure initiative that chancellor in waiting Friedrich Merz has introduced, and new rules on defense spending, with both initiatives requiring changes to the constitutional “debt brake” rules that require a 66% vote in the Bundestag, meaning that all of the CDU/CSU bloc, SPD and Greens must agree, assuming the non-centrist parties reject the measures.

·    US Democrats in the Senate moved to block a Republican measure that would prevent the Democrats from stopping progress of a government spending bill that would avoid a government shutdown on Saturday and keep the US government funded for six months. The Democrats are proposing a different bill that would only stretch funding until April 11.

·    US headline CPI dropped to 2.8% from January's 3% YoY, while core CPI fell to 3.1% from January's 3.3% YoY, both below forecasts, marking the lowest since April 2021. However, while offering some relief from the run of discouraging indicators lately, it won't translate directly into a lower PCE price index - the Fed's preferred gauge of price pressures - because the cooling came mostly in services.

·    Following Trump's 25% tariffs on US steel and aluminium imports, both the EU and Canada retaliated by imposing a 25% tariff on US-made products. Canada targeted goods worth $20 billion while the EU tariffed goods worth EUR 26 billion, matching previous tariffs on US goods. Trump said that he would retaliate against the EU retaliations, though cited no specifics.

·    The Bank of Canada cut its key interest rate by 25bps to 2.75%, marking 225bps in cuts since June 2024. The economy grew more than expected in Q4, aided by earlier rate cuts, but growth is expected to slow due to rising trade conflict with the US.

Key Points 

·    Equities: Tech rebound lifts US stocks; Nvidia, Tesla, Intel lead gains; trade tensions rise

·    Volatility: VIX down sharply; options suggest relief rally may continue; Fed & PPI in focus

·    Digital Assets: Macro uncertainty weighs; Saylor’s Bitcoin strategy gains attention

·    Currencies: JPY launches comeback again overnight, EUR strength eases back ahead of key German Bundestag session

·    Fixed Income: Japanese yields plunge in late Asian

·    Commodities: Copper surges on stockpile shift, gold near record, and crude steadies after rebound