- US President Trump remarked that a new trade deal with China is possible; EU's Sefcovic says they are prepared to talk about reducing the 10% US auto tariff
- FOMC Minutes showed various participants believed it might be appropriate to pause/slow balance sheet runoff given debt ceiling dynamics, supporting USTs.
- Fed's Jefferson said they can take their time weighing the next move and Goolsbee said inflation is too high, once it comes down rates can follow
- FOMC Minutes weighed on the USD, while EUR & GBP were largely rangebound & USD/JPY hit a fresh YTD low
- Commodities await clarity on tariffs and Ukraine; Trump continued critical language on Zelensky though rhetoric from US advisors was more constructive
- APAC traded mostly softer aside from China picking up on Trump's trade remarks, European bourses point to a slightly firmer open
- Looking ahead, highlights include US Initial Jobless Claims, Philly Fed Index, EU Consumer Confidence, NZ Trade, Australian PMI, Japanese CPI, Speakers including ECB’s Makhlouf, Fed’s Goolsbee, Musalem, Jefferson & Barr, Supply from Spain, France & US.
- Earnings from Alibaba, Walmart, Unity, Wayfair, Baxter, Rivian, Zealand Pharma, Airbus, Renault, Zurich Insurance, BE Semiconductor, Schneider Electric, Lloyds, Anglo American, Hargreaves Lansdown & Mercedes Benz.
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US TRADE
EQUITIES
- US stocks were little changed and finished mixed on Wednesday while T-Notes bull steepened with upside in both assets seen in late trade after the FOMC Minutes which signalled the Fed is in no rush to adjust policy and they should be cautious with future adjustments. However, commentary that various participants suggest it may be appropriate to pause or slow the balance sheet run-off until the debt ceiling issue is resolved, took the limelight and sent T-Notes to session highs with stocks following suit. Elsewhere, the attention also largely centred around geopolitics with more issues surrounding Ukraine and Russia peace talks as President Trump called Ukrainian President Zelensky a dictator and said that he needs to move fast or he is not going to have a country left.
- SPX +0.18% at 6,140, NDX +0.05% at 22,175, DJI +0.16% at 44,627, RUT -0.46% at 2,281.
- Click here for a detailed summary.
FOMC MINUTES
- FOMC Minutes stated all participants said it was appropriate to hold rates and the staff's economic outlook was largely unchanged from the one provided at the December meeting. The Committee was well positioned to take time to assess the evolving outlook for economic activity, the labour market, and inflation, with the vast majority pointing to a still-restrictive policy stance. Participants indicated that provided the economy remained near maximum employment, they would want to see further progress on inflation before making additional adjustments to the target range for the federal funds rate. A majority of participants also observed that the current high degree of uncertainty made it appropriate for the Committee to take a careful approach in considering additional adjustments to the stance of monetary policy. Furthermore, a few noted that the current target range for the federal funds rate may not be far above its neutral level and various participants noted it may be appropriate to consider pausing or slowing the balance sheet runoff until there is a resolution of debt ceiling dynamics.
TARIFFS/TRADE
- US President Trump said he will announce tariffs on cars, semiconductors, chips, pharma and probably lumber over the next month or sooner, while he is looking at a 25% tariff on lumber and forest products. Trump also said he is speaking to China on TikTok and later commented that a new trade deal with China is possible.
- EU Trade Commissioner Sefcovic said there is nothing unfair about trade with the US and sees no justification for sudden unilateral tariff increases by the US, according to Bloomberg. It was separately reported Sefcovic said the EU is prepared to talk with the US about reducing its 10% tariff on cars as part of a broader negotiation aimed at avoiding a transatlantic trade war, according to POLITICO.
NOTABLE HEADLINES
- Fed Vice Chair Jefferson (voter) said the Fed can take time when weighing the next monetary policy move and US economic performance has been quite strong, while he added that US monetary policy remains restrictive, the US labour market is solid and inflation has eased but is still elevated. Jefferson also said the best thing the Fed can do is to achieve its dual mandates on inflation and employment, as well as noted that they are fully committed to getting inflation back to target and will do what it takes. Furthermore, he said the Fed is in a watch-and-wait mode about the state of government policy.
- Fed's Goolsbee (2025 voter) said inflation has come down but it is still too high and once inflation has come down, rates can come down more.
- Fed's Bostic (2027 voter) said he did not expect progress on inflation would go in a straight line and bumpiness in inflation is not super surprising, while the question is whether Jan. CPI was a bump in the road or a new trend. Bostic also stated that the Fed did not cut too much last year and policy remains restrictive, as well as noting he is comfortable with taking a pause to see how the economy evolves and does not know what the future holds but noted everything is on the table at every meeting, according to Yahoo Finance.
- US President Trump said the golden age of the US is back and it is open for business, while he will be working with Congress to pass the largest tax cuts in US history and will dramatically cut taxes with no taxes on tips and hopefully no taxes on social security. Furthermore, Trump said they are considering a new concept where they will give 20% of the DOGE savings to American citizens and with 20% to go to paying down debt.
- US President Trump said he is not happy with Boeing (BA) about Air Force One and could buy a used plane or a plane from another country, but also commented that he would not consider buying a plane from Airbus (AIR FP).
- US President Trump's administration may use public health order to cut immigration, according to CNN. It was later reported that President Trump signed an executive order to ensure taxpayer resources are not used to incentivise or support illegal immigration, according to the White House.
- US President Trump’s administration reportedly ordered the Pentagon to plan for 8% budget cuts, according to the Washington Post. US Pentagon later commented that the budget review aims to save about USD 50bln which will be spent on programs aligned with US President Trump's priorities.
- US Commerce Secretary Lutnick said President Trump's goal is to abolish the Internal Revenue Service, according to a Fox interview cited by Reuters.
- US Senate Majority Leader Thune said the US Senate will proceed with its budget resolution, which will take place on Thursday.
APAC TRADE
EQUITIES
- APAC stocks mostly declined with sentiment dampened by ongoing geopolitical uncertainty and after US President Trump's latest comments in which he repeated criticism against Ukrainian President Zelensky and said he will announce tariffs on cars, semiconductors, chips, pharma and probably lumber over the next month or sooner.
- ASX 200 was pressured with mining, materials and financials among the worst performing sectors, while participants digested a slew of earnings releases including from the likes of Rio Tinto and Fortescue.
- Nikkei 225 suffered from the ill effects of a firmer currency and slipped beneath the 39,000 level as Japan's 10yr yield initially climbed to its highest since November 2009.
- Hang Seng and Shanghai Comp conformed to the downbeat mood amid trade frictions and US tariff threats, while China unsurprisingly maintained the Loan Prime Rates. However, the mainland index eventually returned to flat territory and there were recent reports that US President Trump is eying a bigger and better trade deal with China that would include substantial investment and commitments for China to buy more US products.
- US equity futures were lacklustre after yesterday's choppy price action and following the latest FOMC Minutes which stated all participants said it was appropriate to hold rates although various participants noted it may be appropriate to consider pausing or slowing the balance sheet runoff until there is a resolution of debt ceiling dynamics.
- European equity futures indicate a marginally higher cash market open with Euro Stoxx 50 futures up 0.1% after the cash market closed with losses of 1.3% on Wednesday.
FX
- DXY gradually softened with some pressure seen after the FOMC Minutes which noted all participants said it was appropriate to hold rates and the staff's economic outlook was largely unchanged from the December meeting although various participants noted it may be appropriate to consider pausing or slowing the balance sheet runoff until there is a resolution of debt ceiling dynamics. There were also recent comments from Fed officials including Jefferson who said the Fed can take time when weighing the next monetary policy move, while Goolsbee said inflation has come down but it is still too high and once it has come down, rates can come down more.
- EUR/USD traded rangebound but was kept afloat after the dollar softened post-FOMC Minutes and following the prior day's intraday rebound in the single currency from support at the 1.0400 level.
- GBP/USD partially nursed its recent losses and attempted to reclaim the 1.2600 level to the upside.
- USD/JPY retreated amid initial gains in Japanese yields and the negative risk appetite on Tokyo, while further downside was seen after the pair breached beneath last week's support at the 151.00 level to print a fresh YTD low.
- Antipodeans were choppy amid the mostly negative risk appetite and with only brief support from the stronger-than-expected jobs data in Australia in which employment change topped forecasts at 44k (exp. 20k) and was solely fuelled by full-time jobs. Nonetheless, there was a gradual uptick seen later in the session on the back of a softer buck.
- PBoC set USD/CNY mid-point at 7.1712 vs exp. 7.2856 (prev. 7.1705).
FIXED INCOME
- 10yr UST futures extended on the prior day's gains with support seen after the FOMC Minutes which stated that various participants noted it may be appropriate to consider pausing or slowing the balance sheet runoff.
- Bund futures mildly rebounded from yesterday's trough but remained firmly beneath the 132.00 level after recent German supply and hawkish comments from ECB's Schnabel.
- 10yr JGB futures initially edged higher amid the risk-off mood in Japan but later pared its gains after weaker results from the enhanced liquidity auction in Japan for longer-dated bonds.
COMMODITIES
- Crude futures were marginally lower after yesterday's indecisive performance amid geopolitical uncertainty due to the recent US turnaround in foreign policy and with prices contained after bearish private sector inventory data.
- US Private Inventory Data (bbls): Crude +3.3mln (exp. +2.2mln), Distillate -2.7mln (exp. -3.5mln), Gasoline +2.8mln (exp. +0.8mln) Cushing +1.7mln.
- US President Trump said they will fill up the SPR fast and will cut taxes on domestic producers of oil and gas.
- Spot gold traded rangebound albeit with mild gains after rebounding as the dollar softened on the FOMC Minutes.
- Copper futures were choppy with demand contained amid the mostly negative risk appetite in Asia.
CRYPTO
- Bitcoin steadily gained overnight and rose back above the USD 97,000 level following comments from US President Trump who said that he will make the US the crypto capital.
NOTABLE ASIA-PAC HEADLINES
- Chinese Loan Prime Rate 1Y (Feb) 3.10% vs. Exp. 3.10% (Prev. 3.10%)
- Chinese Loan Prime Rate 5Y (Feb) 3.60% vs. Exp. 3.60% (Prev. 3.60%)
- RBNZ Governor Orr said he is feeling more positive about the inflation situation and expects the cash rate will be around 3% by year-end, while he added “in an environment of low and stable inflation”. Orr later commented that there would have to be an economic shock to cut by 50bps again.
DATA RECAP
- Australian Employment (Jan) 44.0k vs. Exp. 20.0k (Prev. 56.3k)
- Australian Full Time Employment (Jan) 54.1k (Prev. -23.7k)
- Australian Unemployment Rate (Jan) 4.1% vs. Exp. 4.1% (Prev. 4.0%)
GEOPOLITICS
RUSSIA-UKRAINE
- Ukrainian President Zelensky is scheduled to meet Thursday in Kyiv with US envoy Kellogg and said it is crucial that this discussion and the overall cooperation with the US remain constructive, according to Axios' Ravid.
- US President Trump said he spoke with Russian President Putin and Ukrainian President Zelensky to end the war, while he repeated language that suggested Ukraine started the war, as well as stated that Zelensky could have come to talks if he wanted to and had done a terrible job. Furthermore, Trump said he hopes to see a ceasefire soon and separately noted a deal can be made with Russia, while he also stated that they are going to resurrect the critical mineral deal with Ukraine and that Greenland is needed from a security standpoint.
- White House National Security Advisor Waltz said chances of a peace deal for Ukraine and Russia are good, while the next step will be technical teams talking details and French President Macron and UK PM Starmer are to come to Washington next week.
- Russian Deputy Chief of Staff said Ukraine's losses exceeded one million military since the start of the military operation 3 years ago, according to Al Jazeera.
- Russian general staff said more than 800 square km of the Kursk region were taken back from Ukrainian forces which is about 64% of the total taken by Ukraine and Russia is advancing in all directions in the Kursk region.
- Russia conducted an attack on Kyiv on Wednesday evening in which powerful explosions were reported to shake the capital, while authorities reported air defences were in action, according to Kyiv Post.
- UK PM Starmer expressed his support for Ukrainian President Zelensky as Ukraine's democratically elected leader and noted that it was perfectly reasonable to suspend elections during wartime, while he reiterated his support for the US-led efforts to get a lasting peace in Ukraine that deterred Russian from any future aggression.
- German Chancellor Scholz said Trump calling Zelensky a 'dictator' is 'false and dangerous', according to Spiegel.
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