- US stocks closed in the green albeit well off their best levels amid a broad-based macro reaction to tariff talk from US President Trump whereby he said he is to announce 25% tariffs on Canada and Mexico because of fentanyl, while he added they will probably decide on Thursday night whether to impose tariffs on oil on Canada and Mexico. This pressured the major indices and lifted the dollar, while treasuries were sold and oil rose to session highs. Following the initial remarks, President Trump commented that China is also going to end up paying a tariff as well.
- USD ultimately strengthened with a late boost seen following comments from US President Trump that he will place a 25% tariff on Canada and Mexico because of fentanyl and will probably decide on Thursday night whether to impose tariffs on oil on Canada and Mexico. This heavily pressured MXN and CAD, while the greenback's major counterparts pared their earlier gains. There was also a slew of data releases which were mixed including weaker-than-expected advanced Q4 GDP and a decline in Initial Jobless Claims, but ultimately had little impact for the dollar.
- Looking ahead, highlights include Japanese Tokyo CPI, Industrial Production & Retail Sales, Australian Private Sector Credit & PPI, Supply from Australia & Japan, Holiday Closures in China, Hong Kong, Taiwan & Vietnam.
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LOOKING AHEAD
- Highlights include Japanese Tokyo CPI, Industrial Production & Retail Sales, Australian Private Sector Credit & PPI, Supply from Australia & Japan, Holiday Closures in China, Hong Kong, Taiwan & Vietnam.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks closed in the green albeit well off their best levels amid a broad-based macro reaction to tariff talk from US President Trump whereby he said he is to announce 25% tariffs on Canada and Mexico because of fentanyl, while he added they will probably decide on Thursday night whether to impose tariffs on oil on Canada and Mexico. This pressured the major indices and lifted the dollar, while treasuries were sold and oil rose to session highs. Following the initial remarks, President Trump commented that China is also going to end up paying a tariff as well.
- SPX +0.53% at 6,071, NDX +0.45% at 21,508, DJIA +0.38% at 44,882, RUT +1.07% at 2,307.
- Click here for a detailed summary.
NOTABLE HEADLINES
- US President Trump said he will put a 25% tariff on Canada and Mexico because of fentanyl, according to Bloomberg. Trump also commented they will probably decide on Thursday night whether to impose tariffs on oil on Canada and Mexico, while he added that they have all the lumber they need and stated that China is going to end up paying a tariff as well.
- OpenAI (MSFT) is in talks for an investment round valuing it up to USD 340bln with the Co. in talks to raise up to USD 40bln in the new round, while Softbank is to lead the new round in which some of the funds raised would go to the AI infrastructure venture.
DATA RECAP
- US GDP Advance (Q4) 2.3% vs. Exp. 2.6% (Prev. 3.1%)
- US GDP Sales Advance (Q4) 3.2% vs. Exp. 3.2% (Prev. 3.3%)
- US Core PCE Prices Advance (Q4) 2.5% vs. Exp. 2.5% (Prev. 2.2%)
- US GDP Cons Spending Advance (Q4) 4.2% (Prev. 3.7%)
- US GDP Deflator Advance (Q4) 2.2% vs. Exp. 2.4% (Prev. 1.9%)
- US Pending Sales Change MM (Dec) -5.5% (Prev. 2.2%, Rev. 1.6%)
- US Initial Jobless Claims w/e 207.0k vs. Exp. 220.0k (Prev. 223.0k)
- US Continued Jobless Claims w/e 1.858M vs. Exp. 1.89M (Prev. 1.899M, Rev. 1.900M)
FX
- USD ultimately strengthened with a late boost seen following comments from US President Trump that he will place a 25% tariff on Canada and Mexico because of fentanyl and will probably decide on Thursday night whether to impose tariffs on oil on Canada and Mexico. This heavily pressured MXN and CAD, while the greenback's major counterparts pared their earlier gains. There was also a slew of data releases which were mixed including weaker-than-expected advanced Q4 GDP and a decline in Initial Jobless Claims, but ultimately had little impact for the dollar.
- EUR initially strengthened following the ECB meeting where the central bank cut rates as expected although the remarks from Lagard lacked further dovish signals and source reports unveiled expectations are for rate cuts again in March with a deeper debate for April. Nonetheless, the single currency later gave back its gains and more in reaction to Trump's latest tariff remarks.
- GBP traded choppy with GBP/USD contained within the 1.2400 handle amid light UK-specific catalysts to spur price action.
- JPY strengthened against the greenback but with USD/JPY off lows after partially rebounding from a brief dip beneath the 154.00, while participants look ahead to a slew of Japanese data overnight including Industrial Production, Retail Sales and Tokyo CPI.
- South African Repo Rate (Jan) 7.5% vs. Exp. 7.5% (Prev. 7.75%) with the MPC split on the decision.
FIXED INCOME
- T-notes extended on the post-FOMC bid but are off their peaks following a drop in jobless claims and a surge in consumer spending.
COMMODITIES
- Oil prices settled with marginal gains in what was a fairly rangebound session but with a brief surge seen late in the session following President Trump's tariff comments.
- Supply of the five North Sea crude oil grades which underpin the dated-Brent benchmark is to average 565k BPD in March (prev. 550k BPD in Feb.), according to Reuters.
- Russia's Deputy PM Novak said Russia’s 2024 oil production reached 516mln tons and oil exports were at 240mln tons in 2024, while Natgas output rose 7.6% to 685bcm and pipeline exports grew 15.6% (2024). It was separately reported that oil flow through Russia's Ust-Luga appeared to have paused after drones, according to Bloomberg.
- Shell (SHEL LN) CEO said the Russia situation means there is still quite a bit of LNG demand within Europe and that Asia is a "bit softer", while the Co. does not intend to move out of refining entirely but is not looking to expand the refining footprint.
- Petrobras is to lower natural gas prices for distributors by 1% on average as of February 1st.
GEOPOLITICAL
MIDDLE EAST
- Hamas armed wing announced the killing of its military leader Mohammed Deif and the killing of its deputy commander Marwan Issa, according to a statement.
- Israel initially halted the planned release of Palestinian prisoners in response to the chaos and dangerous scenes in Khan Younes during the handover of the Israeli hostages today, according to Journalist Elster citing Israeli media. However, it was later reported that process of releasing the Palestinian prisoners had started.
- Israeli army said it recently intercepted a reconnaissance drone launched by Lebanon's Hezbollah.
RUSSIA-UKRAINE
- Russia could face a necessity to build up its nuclear and missile arsenals, according to Ria citing the Foreign Ministry.
- US President Trump said he had been in contact with Russia and will facilitate the transfer of remains of the deceased to Russia in reference to the recent plane and helicopter collision.
OTHER
- Panama's President Mulino has ruled out discussions around the issue of control of the Panama Canal in a meeting with US Secretary of State Rubio on the weekend.
CRYPTO
- Elliott Management Corp warned that the Trump administration's embrace of crypto is helping fuel a speculative mania that could cause havoc when prices collapse, according to FT.
ASIA-PAC
NOTABLE HEADLINES
- US President Trump’s team is not close at all to making a decision on universal tariffs and the ones slated for China, according to sources cited by Bloomberg.
- India extended its bond market trading by 30 minutes to 17:30 local time.
EU/UK
NOTABLE HEADLINES
- UK government is mulling proposals to relax rules on pension protection fund and reducing the levy it collects from the pension scheme.
- ECB cut its rates by 25bps with the Deposit Rate cut to 2.75%, Marginal Lending Rate cut to 3.15% and Refinancing Rate cut to 2.90%, as expected. ECB said policy is restrictive and the economy is facing headwinds, while it added that disinflation is on track and it will take a meeting-by-meeting approach. Furthermore, the Governing Council is not pre-committing to a particular rate path and it noted that monetary policy remains restrictive and that past interest rate hikes are still transmitting to the stock of credit, with some maturing loans being rolled over at higher rates.
- ECB President Lagarde (post-meeting statement) said the economy is expected to remain weak in the near term, but conditions for a recovery remain in place and the labour market remains robust, while she reiterated that growth risks remain tilted to the downside.
- ECB President Lagarde said during the Q&A that the rate decision was unanimous, supported by all Governors and reiterated policy is still in restrictive territory. Lagarde said there was no discussion about the terminal rate and that policymakers know the direction of travel, while policymakers did not discuss a 50bps rate cut. Furthermore, Lagarde said ECB staff will publish a paper on the revision of the natural interest rate on February 7th, as well as noted it is totally unrealistic to provide forward guidance given the uncertainty, and debate about neutral rates is entirely premature.
- ECB policymakers expect to cut rates again in March with a broader and deeper debate after that (potentially implying an April pause), according to Reuters sources.
- ECB may drop its "restrictive" label on the rate stance as soon as March, according to Bloomberg citing sources. The sources noted that with another 25bps rate cut highly likely then, bringing the deposit rate to 2.5%, such a level may not fully deserve that label anymore, while a change in that terminology in the ECB’s statement is therefore something officials will weigh when they next discuss monetary policy.
DATA RECAP
- German GDP Flash QQ SA (Q4) -0.2% vs. Exp. -0.1% (Prev. 0.1%)
- German GDP Flash YY SA (Q4) -0.2% vs. Exp. 0.0% (Prev. -0.3%)
- German GDP Flash YY NSA (Q4) -0.4% vs. Exp. -0.3% (Prev. 0.1%)
- EU GDP Flash Prelim QQ (Q4) 0.0% vs. Exp. 0.1% (Prev. 0.4%)
- EU GDP Flash Prelim YY (Q4) 0.9% vs. Exp. 1.0% (Prev. 0.9%)
- EU Services Sentiment (Jan) 6.6 vs. Exp. 6.0 (Prev. 5.9, Rev. 5.7)
- EU Economic Sentiment (Jan) 95.2 vs. Exp. 94.1 (Prev. 93.7)
- EU Consumer Confid. Final (Jan) -14.2 vs. Exp. -14.2 (Prev. -14.2)
- EU Industrial Sentiment (Jan) -12.9 vs. Exp. -13.8 (Prev. -14.1)
- EU Unemployment Rate (Dec) 6.3% vs. Exp. 6.3% (Prev. 6.3%, Rev. 6.2%)
- EU Selling Price Expec (Jan) 8.7 (Prev. 7.6, Rev. 7.5)
- EU Cons Infl Expec (Jan) 20.2 (Prev. 21.0, Rev. 21.2)
