- US stocks finished lower with price action choppy amid the Federal Reserve meeting in which there was an immediate hawkish reaction to the Fed holding rates at 4.25-4.50%, as expected, while it removed the reference that "inflation has made progress toward the Committee's 2 percent objective" in the accompanying statement. However, Fed Chair Powell later noted in the Q&A that it was a language clean-up, as opposed to anything fundamental, which saw a dovish reversal to the initial moves. Furthermore, Powell reiterated the Fed does not need to be in a hurry to adjust the policy stance and stated the assessment of the policy stance has not changed but policy is meaningfully less restrictive than when they started cuts.
- USD was choppy in reaction to the FOMC in which the Fed kept rates unchanged but made some changes to its statement in which it noted that the labour market conditions remain solid and removed language that inflation has made progress to the 2% goal. However, the initial hawkish reaction was then reversed during the press conference as Powell stated the reason behind why the progress of inflation had been removed in the statement was purely a language clean up/shortening the sentence, while he also noted how they got two good readings in a row on inflation but when asked about a March cut, Powell reiterated the Fed is not in a hurry to cut rates.
- Looking ahead, highlights include New Zealand Business Confidence, Australian Export & Import Price Index, Philippines GDP, Speech from RBA Assistant Governor Jones, Holiday Closures in China, Hong Kong, South Korea, Taiwan, Singapore, Malaysia & Vietnam.
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LOOKING AHEAD
- Highlights include New Zealand Business Confidence, Australian Export & Import Price Index, Philippines GDP, Speech from RBA Assistant Governor Jones, Holiday Closures in China, Hong Kong, South Korea, Taiwan, Singapore, Malaysia & Vietnam.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks finished lower with price action choppy amid the Federal Reserve meeting in which there was an immediate hawkish reaction to the Fed holding rates at 4.25-4.50%, as expected, while it removed the reference that "inflation has made progress toward the Committee's 2 percent objective" in the accompanying statement. However, Fed Chair Powell later noted in the Q&A that it was a language clean-up, as opposed to anything fundamental, which saw a dovish reversal to the initial moves. Furthermore, Powell reiterated the Fed does not need to be in a hurry to adjust the policy stance and stated the assessment of the policy stance has not changed but policy is meaningfully less restrictive than when they started cuts.
- SPX -0.47% at 6,039, NDX -0.24% at 21,411, DJIA -0.31% at 44,714, RUT -0.25% at 2,283.
- Click here for a detailed summary.
FOMC
- Federal Reserve kept rates on hold at 4.25-4.50% as expected, while the decision was unanimous and the statement did not include language that inflation had made progress toward the 2% goal as it had in the December statement. Fed said the unemployment rate has stabilised at a low level in recent months and labour market conditions remain solid, while inflation remains somewhat elevated (prev. labour market conditions have generally eased, and the unemployment rate has moved up but remains low, while inflation has made progress toward the Committee's 2% objective but remains somewhat elevated). Fed maintained it judges that risks to achieving its employment and inflation goals are "roughly in balance" and that "the economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate." Furthermore, it maintains language that "In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks".
- Fed Chair Powell said in the press conference that they do not need to be in a hurry to adjust the policy stance and are not on a preset course, while he added that reducing policy restraint too fast could hinder progress but too slowly could unduly weaken employment and it will adjust the policy stance to promote goals. Powell also stated that policy is well positioned to deal with risks and uncertainties, as well as noted that policy framework discussions began at this meeting with the review of the framework to wrap up by late summer and they will retain the 2% inflation goal which will not be a focus of the review.
- Fed Chair Powell said during the Q&A that he is not going to comment on what US President Trump said about lowering rates and the public should be confident Fed are keeping heads down and doing their work, while he had not had contact with Trump. Powell also noted the assessment of the policy stance has not changed but policy is meaningfully less restrictive than when they started cuts, while he responded it is a language clean up and just used to shorten the sentence when asked about removing reference to inflation progress and noted the Fed got two good readings in a row on inflation. Powell stated the Fed is in the mode of waiting to see what policies are enacted and does not know what will happen with fiscal, regulatory, tariffs and immigration policy, as well as stated that forecasts are highly uncertain and there is currently some elevated uncertainty because of significant policy shifts, but should be passing. Powell added that the Fed is looking at data to guide them and they are in a very good place right now with the economy in quite a good place as well and he expects to see further progress on inflation. Furthermore, he said when asked about ending QT, that the most recent data suggests reserves are still abundant and the Fed intends to reduce the balance sheet size and are closely monitoring signals on reserves, while he stated policy stance is meaningfully restrictive and they do not need to wait for 2% inflation to cut rates but want to see further inflation progress.
NOTABLE HEADLINES
- White House Budget Office officially rescinded the order authorising a federal freeze on grants, according to The Washington Post. However, the White House Press Secretary later said this is not a recission of the Federal funding freeze and it simply a recission of the OMB memo.
- US Government Worker Union sued to block US President Trump from reclassifying and firing thousands of federal employees.
- US Commerce Secretary Nominee Lutnick praised the chips manufacturing subsidy programme but said he needs to review investments and they must bring semiconductor manufacturing to the US. Lutnick separately commented that tariffs on Canada are to address fentanyl that enter the US and if Canada addresses the flow of fentanyl into the US, there will be no tariffs.
- Canadian Energy and Natural Resources Minister Wilkinson said Canada's response to tariffs will be regionally fair and equitable and won't unfairly target or hurt Alberta.
- Mexican President Sheinbaum said she does not think the US will impose tariffs on February 1st and Mexico has a plan if US tariffs are added.
- WSJ's Timiraos commented that with the December CPI, PPI and import prices in hand, forecasters who do the math expect core PCE prices to have risen 0.18% which would hold the 12-month rate at 2.8% and lower the 6-month and 3-month annualized rates to 2.3%.
DATA RECAP
- US Adv Goods Trade Balance (Dec) -122.11B (Prev. -103.5B)
- US Wholesale Inventories Adv (Dec) -0.5% (Prev. -0.2%, Rev. -0.1%)
- US Retail Inventories Ex-Auto Adv (Dec) 0.2% (Prev. 0.5%, Rev. 0.4%)
FX
- USD was choppy in reaction to the FOMC in which the Fed kept rates unchanged but made some changes to its statement in which it noted that the labour market conditions remain solid and removed language that inflation has made progress to the 2% goal. However, the initial hawkish reaction was then reversed during the press conference as Powell stated the reason behind why the progress of inflation had been removed in the statement was purely a language clean up/shortening the sentence, while he also noted how they got two good readings in a row on inflation but when asked about a March cut, Powell reiterated the Fed is not in a hurry to cut rates.
- EUR softened and briefly dipped beneath the 1.0400 handle before recovering post-FOMC and presser.
- GBP saw two-way price action but returned to flat territory with little reaction seen to recent comments from BoE Governor Bailey.
- JPY traded slightly firmer but with the downside in USD/JPY cushioned by support near the 155.00 level.
- Bank of Canada reduced the policy rate by 25bps (as expected) to 3% and announced the end of quantitative tightening. BoC's Macklem said they will do everything they can to be a source of stability if there are tariffs and that they removed rate guidance language because there is a lot of uncertainty out there.
- Swedish Riksbank Rate 2.25% vs. Exp. 2.25% (Prev. 2.5%). Riksbank stated the forecast for the policy rate made in December essentially holds but the Executive Board is prepared to act if the outlook for inflation and economic activity changes, while Riksbank Governor Thedeen later commented that the best judgement is that rates have reached the bottom but the outlook is genuinely uncertain.
FIXED INCOME
- T-notes were marginally lower and the curve flattened with price action choppy on the Fed statement and presser.
COMMODITIES
- Oil prices were lower with mild headwinds seen after slightly softer US tariff remarks.
- US EIA Weekly Crude Stocks 3.463M vs. Exp. 3.15M (Prev. -1.017M)
- Kazakhstan's Energy Minister said to make a final decision on production cuts after the JMMC meeting on 3rd February 2025, while Kazakhstan plans to start consultations with Tengizchevroil on the revision of the production sharing agreement and an increase in the country's share is not ruled out.
- Russia's February crude oil exports from Western Ports are set to fall by 8% from January, according to Reuters calculations.
- EU Commission proposed a ban on Russian primary aluminium and alloys, while the proposed ban on Russian aluminium includes a 1yr phase-in period.
- A rise in gold shipments to the US has led to a shortage of bullion in London, according to the FT.
GEOPOLITICAL
- Ukrainian President Zelensky said since the start of the Ukraine-Russia war, Ukraine has liberated 50% of what Russia initially occupied, while he added that Ukraine wants a diplomatic resolution.
ASIA-PAC
NOTABLE HEADLINES
- US President Trump’s officials reportedly discuss tightening curbs on Nvidia’s (NVDA) China sales although any curbs would likely be a long way off as the new team sets goals, while officials held early talks about restricting Nvidia’s H20 chip.
- US Commerce Secretary Nominee Lutnick said China's DeepSeek was able to create AI "dirt cheap" by leveraging what it had taken from the US and that DeepSeek AI misused US technology, while he noted "They stole things, they broke in, they've taken our IP". Lutnick also commented that export controls without tariffs are a "whack-a-mole" model on China and that Chinese tariffs should be the highest, but added the US may need to impose new tariffs on allies.
- Chinese AI start-up DeepSeek's chatbot achieved only 17% accuracy in delivering news and information ranking 10th out of 11 vs Western peers including OpenAI's ChatGPT (MSFT) and Google Gemini (GOOG), according to a Newsguard audit.
EU/UK
NOTABLE HEADLINES
- BoE Governor Bailey said it is important that they raise the growth rate of the economy, while he added that financial stability is the foundation for growth and there is not a trade-off. Bailey also said they are seeing hedge funds take much larger positions in government debt.
- UK Chancellor Reeves said the government has begun to turn things around and seeing some encouraging signs in the British economy, while she added that the solution is for the government to systematically remove barriers.
- EU Commission set out a roadmap for Europe to regain economic competitiveness and EU initiatives include laws to boost EU cloud and AI presence.
- German Economy Minister said the German economy has been stagnating for a long time and restrictive fiscal policies have been a brake on growth.
- French Socialist Kanner said his party will not be returning to budget talks party and wants additional concessions from PM Bayrou.
