- Tariff headlines dominated early sentiment, with Trump enacting levies on steel and aluminium imports. Trump made other remarks in the oval office, stating Tariffs on autos and chips and other areas, including pharmaceuticals will be coming next. Reciprocal tariff details will also be released in the next few day, Trump added.
- FX markets saw a modest risk off move, but no follow through. There has been no cash tsy trading today, with Japan markets out.
- Gold safe haven status has seen another day of gains and its rise swift early in the day reaching a new high of $2,942.68, before giving back some of those gains to be at $2,919.75 – comfortably higher than the opening price of $2,908.26.
- Later US January NFIB small business optimism prints and Fed Chair Powell testifies to the senate and Fed’s Hammack, Williams and Bowman speak. Q4 French unemployment is released and the ECB’s Schnabel appears, and BoE’s Mann & Bailey speak.
MARKETS
US TSYS: Futures Slightly Weaker, More Tariff Headlines, Fed Chair Testimony Due
TYH5 is 109-06, -0-01 from NY closing levels.
- Headlines have continued to rattle markets & squelch sentiment.
- Since the market close, headlines have stated that US President Donald Trump signed an order imposing 25% tariffs on steel and aluminium, with no exemptions. The tariffs also target finished metal products and take effect on March 4. Trump indicated tariffs on cars, drugs, and chips could follow, with further reciprocal tariffs expected within two days.
- That said, “US President Donald Trump has declared he would give "great consideration" to a tariff exemption for Australia.” (per ABC)
- There has been no cash trading for US tsys in Asia-Pac session today with Japan out for the Foundation Day Holiday.
- The focus turns to Fed Chairman Powell's testimony to the Senate Banking Committee today at 1000ET (text, Q&A). There is also a $58bn 3-year Treasury note sale.
EUROZONE: Unlikely To Face A Recession In 2025 But Risk Of Trade/Energy Shocks
Q4 GDP data showed that growth remained weak in the euro area at the end of 2024 and rising natural gas prices from a cold winter and the end to Russian pipeline flows through Ukraine are likely to weigh on already disappointing growth. Despite falling German activity, our January estimate of the recession probability 6-months ahead remained close to zero. The euro area remains vulnerable to trade and energy shocks though, which aren’t modelled.
- The euro area was flat on the quarter in Q4 to be up 0.9% y/y, while Germany continues alternating between positive and negative falling 0.2% q/q in Q4 to be down 0.2% y/y.
- The region is yet to face a universal tariff from the US, but President Trump has said it won’t escape. The US had a $235.6bn visible trade deficit with the EU in 2024 and 18.6% of its imports came from the group.
- Our estimate from 1985, which includes four recessionary episodes, has had no probability of a euro area recession 6-months ahead for over a year. The one from 1998 with three recessions has dropped to around 9% in January from 31% in June, the 2024 peak, and 64% in September 2023. The ECB began easing in June last year.
- Real oil prices, M3 growth and the change in unemployment are adding upward pressure on the recession probability, while the real repo rate, real exchange rate, economic sentiment and the yield curve are providing downward pressure. Real equities have been neutral.
- It is worth noting that econometric calculations are just estimates and not a projection.
Euro area recession probability 6-months ahead estimate
AUSSIE BONDS: Slightly Richer, Tariff Exemption For AU?, Fed Chair Testimony Due
ACGBs (YM +1.0 & XM +1.0) are slightly stronger after today’s confidence data drop.
- Westpac’s measure of consumer confidence was little changed in February rising 0.1% m/m to 92.2 as the positive effect of increased talk of a February rate cut following the Q4 CPI data was offset by global uncertainty and continued cost-of-living pressures.
- NAB January business confidence picked up to +4 from -2, its highest in three months. The series has been oscillating around the zero mark for around two years. Conditions moderated further to +3 from +6, in line with the November outcome.
- “US President Donald Trump has declared he would give "great consideration" to a tariff exemption for Australia.” (per ABC)
- Cash ACGBs are 1-2bps richer.
- There has been no cash trading for US tsys in Asia-Pac session today with Japan out for the Foundation Day Holiday. TYH5 is little changed.
- The focus turns to Fed Chairman Powell's testimony to the Senate Banking Committee today.
- Swap rates are 1bp lower.
- The bills strip is flat to +1 across contracts.
- Tomorrow, the local calendar will see Home Loans data.
- This week, the AOFM plans to sell A$400mn of the 2.75% 21 May 2041 bond tomorrow and A$700mn of the 1.50% 21 June 2031 bond on Friday.
AUSSIE BONDS: AU-US 10Y Diff Remains In Bottom Half Of Range
The AU-US 10-year cash yield differential currently stands at -9bps, positioned in the lower half of the ±30bps range that has largely held since November 2022.
- A simple regression of the 10-year yield differential against the AU-US 1-year forward 3-month swap rate (1Y3M) differential over the past year suggests the current spread is about 10bps above fair value, estimated at -19bps.
- The 1Y3M differential, a key gauge of expected relative policy trajectories over the next 12 months, has traded within a 15bps range this year and is currently at the lower end of that range.
- The 1Y3M differential has declined approximately 90bps since mid-September, falling from +55bps to -35bps.
Figure 1: AU-US Cash 10-Year Yield Differential (%)
Source: MNI – Market News / Bloomberg
AUSTRALIA DATA: : NAB Survey Shows Soft Activity But Stabilising Prices
NAB January business confidence picked up to +4 from -2, its highest in three months. The series has been oscillating around the zero mark for around two years. Conditions moderated further to +3 from +6, in line with the November outcome. The price/cost components remained elevated but below cycle highs and labour demand is above the 2024 trough. More data painting a mixed picture ahead of the RBA’s February 18 meeting.
- Final product price rises appear to have troughed with January rising 0.8% 3m/3m after a low of 0.58% in September. Retail prices were also higher +0.9% 3m/3m after 0.7% seasonally adjusted in December. Also labour costs picked up to 1.8% 3m/3m from 1.4% in December, but purchase costs moderated to 1.1% from 1.4%.
Australia NAB business price/cost components 3m/3m %
- Two of the three components in business conditions declined with trading at 6.4 after 9.8 and profitability -1.7 down from +3.9 and the lowest since June 2020. However, employment rose slightly to 4.8 up over 4 points from the June trough, in line with signs of stabilisation in the labour market.
- Forward-looking orders remained negative at -2.8 deteriorating from -1.5 but still better than April’s -8.0. Exports turned negative to -1.0.
Australia NAB activity
AUSTRALIA DATA: Consumers Remain Pessimistic As Cost-Of-Living Still A Problem
Westpac’s measure of consumer confidence was little changed in February rising 0.1% m/m to 92.2 as the positive effect of increased talk of a February rate cut following the Q4 CPI data was offset by global uncertainty and continued cost-of-living pressures. Consumers are not as pessimistic as they were in 2023 but confidence remains negative about current conditions but is improving regarding the outlook.
Australia Westpac consumer confidence
- Family finances compared to a year ago were the weak point in the February Westpac survey falling 3.4% m/m, the second straight fall, but a year ahead rose 0.6% m/m.
- Perceptions of the economic outlook were more positive rising 1.6% m/m for a year ahead and 0.9% m/m for 5-years out.
- Unemployment expectations improved 1.1% to 125.8 signalling that perceptions of the labour market remain positive and employees are not expecting layoffs.
- The “time to buy a major household item” continued its gradual improvement rising 0.1% m/m to be up 4.7% y/y.
- Households were more pessimistic about the housing market in February with the “time to buy a dwelling” down 2.3% m/m after rising 10.2% in January but it still stands 18.4% higher than a year ago as rate hike expectations have dissipated.
- The Westpac survey was undertaken between February 3 and 6.
Australia Not Important Enough To US To Be A Tariff Target
Today Australian PM Albanese and US President Trump discussed the possible exemption of Australia from the just signed 25% tariffs on US imports of steel and aluminium to take place on March 4. Trump mentioned this exclusion as an option when he signed the order, which currently doesn’t include any “exemptions”. The US is not an important trading partner for Australia as a whole and vice versa.
- Australia may get an exemption from the current tariffs and avoid being targeted as it is one of the few countries that the US has a surplus with, it accounts for only 0.5% of US imports and 2% of aluminium imports and less than that for steel.
- Australia’s 0.5% of total US imports is dwarfed by 12.6% coming from Canada, 15.6% from Mexico, 18.6% from the EU and 13.4% from China – the ones being targeted by universal tariffs.
- The US trade surplus with Australia rose slightly last year to US$17.9bn from US$17.6bn. It has increased in each of the last four years and is up almost $9bn since 2020.
US trade deficit US$bn 12mth sum
- Australia is way more vulnerable to a reduction in demand from China whether due to its own structural problems or the impact of the US’ universal 10% tariff. While exports to the US rose to 4.6% of the total in 2024 from 3.7%, to China they were 34.5%.
- Australia is a large LNG exporter and may benefit from increased shipments to China following its 15% tariff on LNG imports from the US. Oil & gas accounted for 15.5% of Australia’s 2024 merchandise exports.
Australia merchandise exports by destination % total 2024
Source: MNI - Market News/ABS
BONDS: NZGBS: Closed Slight Mixed After NZ$5.5bn Syndicated Tap Of May-35 Bond
NZGBs closed slightly mixed in the middle of the session’s ranges on a data-light day.
- NZGBs did, however, manage to slightly outperform ACGBs, with the NZ-AU yield differential 1bp tighter on the day.
- There has been no cash trading for US tsys in Asia-Pac session today with Japan out for the Foundation Day Holiday. TYH5 is little changed.
- Swap rates closed 1-3bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed little changed. 49bps of easing is priced for February, with a cumulative 121bps by November 2025.
- “NZ’s residential construction market may start to recover in 2H of 2025, the Treasury says in Fortnightly Economic Update. ANZ business survey shows residential building intentions are highest since 2021.” (per BBG)
- Today, the local calendar was empty. Tomorrow Treasury Chief Economic Adviser Dominick Stephens will deliver a presentation titled ‘The State of the Economy’. The next data release is Card Spending on Thursday.
- NZ Debt Management has issued NZ$5.5bn of May 2035 bonds via a syndicated tap. The bonds, which carry a coupon of 4.50%, were issued at a spread of 11bps over the 15 May 2034 nominal bond, at a yield to maturity of 4.65%. Total book size, at final price guidance, exceeded NZ$21.5bn.
BONDS: NZ-US 10Y Differential Remains Near Lowest Since Mid-2021
NZGBs are currently showing a bull-steepener, with benchmark yields flat to 2bps lower. The NZGB 10-year is slightly outperforming its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 1-2bps tighter on the day.
- At +2bps, the NZ-US 10-year differential remains around its lowest since mid-2021.
- A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past 18 months indicates the 10-year yield differential is around 5bps above its estimated fair value of -3bps.
- Notably, the regression error has fluctuated within a range of ±15bps over the past year, highlighting some variability in the relationship.
- The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.
Figure 1: NZ-US 10-Year Yield Differential
Source: MNI – Market News / Bloomberg
NEW ZEALAND: NZ More Vulnerable To US Tariffs Than Australia
NZ has come out today and reiterated its close relationship with the US. Its economy is more vulnerable to American protectionism than Australia though, as the US became NZ’s second most important export destination in 2024 overtaking Australia. 12.7% of total NZ exports go to the US compared with 4.6% for Australia, but still around half of that going to China at 25%. On the other side, the US runs a very small trade deficit with NZ of $1.1bn in 2024 and only 0.2% of its imports are from NZ and so it is unlikely to be a tariff target.
NZ merchandise exports by destination % total 2024
FOREX: Steady USD Trends, Tariff Headlines Only Cause Minor Risk Off
Aggregate G10 FX moves have been modest so far in Tuesday trade. The USD BBDXY index sits around 1304, near end Monday levels from the US session. there was an early slight risk-off tone for markets, which benefited the yen, but follow through did not eventuate.
- Early headwinds were dominated by Trump signing tariffs of 25% on steel and aluminium imports. Trump made other remarks in the oval office, stating Tariffs on autos and chips and other areas, including pharmaceuticals will be coming next Trump stated. Reciprocal tariff details will also be released in the next few day, Trump added.
- US equity futures are lower, although losses are not much beyond 0.20% at this stage. There has been no cash Tsy trading so far today, with Japan markets out. Futures in the Tsy space, are little changed.
- USD/JPY liquidity has no doubt been lighter, the pair last around 152.00 (range so far today 151.69-152.06).
- We had Australian consumer and business sentiment readings earlier from Westpac and NAB, but they didn't shift AUD, which was last 0.6270/75. NZD/USD was around 0.5640, also little changed for the session. The AUD/NZD cross is down slightly from recent highs, but still above 1.1100 (last 1.1115/20)
- USD/CAD is slightly higher, following the earlier tariff news, but at 1.4330/35, remains well within recent ranges.
- Looking ahead, the US January NFIB small business optimism prints and Fed Chair Powell testifies to the senate and Fed’s Hammack, Williams and Bowman speak. Q4 French unemployment is released and the ECB’s Schnabel appears, and BoE’s Mann & Bailey speak.
ASIA STOCKS: Tariffs Continue to Dominate, Most Markets Weaker.
- China’s major bourses were lower today as President Trump signing tariffs on steel and aluminium imports as he indicated that autos, chips and pharmaceuticals were next in his sights.
- The Hang Seng lead the way lower down -0.59%, with the CSI 300 down -0.36%, Shanghai Comp down -0.16% and Shenzhen down -0.31%
- Taiwan’s TAIEX bucked the trend rising +0.20% today.
- The Jakarta Composite continued its poor run down -1.50%, to be down for a fifth successive day of trading.
- As Indian markets get going on their trading day the NIFTY 50 is opening very weak, down -0.45% in what could be a fifth successive day of declines.
- Korea however is bucking this trend as discussions in parliament centre around a special budget to stimulate growth in the ailing economy. Yesterday the opposition proposed the idea of an additional budget and the ruling People’s Party said today, it does not oppose the idea.
- The KOSPI is a regional bright spot today up +0.83%
OIL: Crude Holding Onto Gains With Little Reaction To Latest Tariff News
Oil prices have been trading in a narrow range during the APAC session today with little reaction to tariff news and as markets wait for key US CPI data due on Wednesday. Brent is up 0.3% to $76.07/bbl after a high of $76.20 and a low of $75.90. WTI is 0.2% higher at $72.48 following a peak of $72.61 and trough of $72.31. The USD is 0.1% stronger.
- Oil rallied on Monday on a tighter supply outlook due to stricter sanctions resulting in Russia producing below its quota. It has held onto those gains today.
- In recent weeks, there has been a large US crude stock build as Canadian flows rose sharply to beat tariff deadlines. Industry-based US inventory data is released later today and there may be a slowdown as Canada negotiated last week a 30-day delay in the imposition of US tariffs but then producers may continue frontloading shipments to the US just in case they are still implemented in March. A 10% import tariff on Canadian oil was proposed.
- While there hasn’t be a material reaction to US President Trump signing the steel/aluminium tariff order today, oil markets remain concerned that an increase in protectionism will reduce global demand. He said that pharmaceuticals, autos and chips will now be considered.
- Risks to the Gaza ceasefire deal are contributing to increased geopolitical tensions, as well as the US’ tougher stance on Iran.
- Later US January NFIB small business optimism prints and Fed Chair Powell testifies to the senate and Fed’s Hammack, Williams and Bowman speak. Q4 French unemployment is released and the ECB’s Schnabel appears, and BoE’s Mann & Bailey speak.
GOLD: Tariff Threats Lead Investors to Gold.
- News on potential tariffs on steel and aluminum by the US continues to reverberate through financial markets, shaking investor confidence.
- Gold safe haven status has seen another day of gains and its rise swift early in the day reaching a new high of $2,942.68, before giving back some of those gains to be at $2,919.75 – comfortably higher than the opening price of $2,908.26.
- Gold’s ‘safe-haven’ status ensures that in periods where the unpredictability of President Trump’s comments or threats on tariffs spooks markets, gold climbs.
- Evolving news out of China could have material impact for gold as a pilot program for insurance funds is being launched that allows diversification of their asset allocation into gold; with estimates ranging of US$25 to $30 billion could be allocated to the scheme.
- Gold’s appeal is having far reaching impacts globally with South African listed goldminers jumping 2.3% on Monday, following Trump headlines on tariffs.
- Given Gold is impacted by interest rate movements, the day ahead sees the Federal Reserve Chairman Jerome Powell’s semi-annual testimony to lawmakers where market observers will pore over every word for hints as to the direction of interest rates.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 11/02/2025 | 0700/0800 |  NO | GDP | |
| 11/02/2025 | 0845/0845 |  GB | BOE's Mann lecture on Economic Prospects | |
| 11/02/2025 | 1100/0600 | ** |  US | NFIB Small Business Optimism Index |
| 11/02/2025 | 1215/1215 | GB | BOE Bailey's speech on changes in financial markets | |
| 11/02/2025 | - | *** |  CN | Money Supply |
| 11/02/2025 | - | *** | CN | New Loans |
| 11/02/2025 | - | *** | CN | Social Financing |
| 11/02/2025 | 1330/0830 | * |  CA | Building Permits |
| 11/02/2025 | 1350/0850 | US | Cleveland Fed's Beth Hammack | |
| 11/02/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 11/02/2025 | 1500/1000 | US | Fed Chair Jerome Powell | |
| 11/02/2025 | 1500/1000 | *** | US | US Fed Chair Speech |
| 11/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 11/02/2025 | 1700/1200 | *** | US | USDA Crop Estimates - WASDE |
| 11/02/2025 | 1700/1800 |  EU | ECB's Schnabel in Nuremberg Talk Series' panel | |
| 11/02/2025 | 1800/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 11/02/2025 | 2030/1530 | US | New York Fed's John Williams | |
| 11/02/2025 | 2030/1530 | US | Fed Governor Michelle Bowman | |
| 12/02/2025 | 0030/1130 | ** |  AU | Lending Finance Details |
| 12/02/2025 | 0900/1000 | * |  IT | Industrial Production |
| 12/02/2025 | 1000/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 12/02/2025 | 1000/1100 | EU | ECB's Elderson in roundtable at the MNI Connect event | |
| 12/02/2025 | 1200/0700 | ** | US | MBA Weekly Applications Index |
| 12/02/2025 | 1330/0830 | *** | US | CPI |
| 12/02/2025 | 1330/0830 | ** | US | US CPI Annual Revised |