- The USD surged around the US/Asia Pac cross-over on Trump tariff headlines. Trump stating he will impose tariffs on Mexico and Canada from Feb 1.
- US Tsys futures are trading lower today, and at session's worst with most contracts trading below the overnight lows.
- JGB futures are weaker and near session cheaps, -27 compared to settlement levels. We had stornger Tokyo CPI earlier, but only for the headline result (relative to expectations).
- Looking ahead, outside of tariff related risks, we have some German regional inflation data. In the US we have the PCE, along with Fed speak from Bowman. The MNI Chicago PMI also prints.
MARKETS
- Tsys futures are trading lower today, and at session's worst with most contracts trading below the overnight lows. The move comes following further Trump tariffs headlines, and confirmation he will be signing more executive orders at 3pm ET time, with traders now positioning for an untick in volatility. TU is -02⅛ at 102-26+, while TY is -07 at 109-00+.
- A bullish corrective cycle in tsys futures remains intact and the contract is holding on to its recent gains. 109-11+, the 50-day EMA, remains exposed. A clear break of it would strengthen a bullish theme and open 109-31, the Dec 18 high. The medium-term trend condition is bearish with the bear trigger at 107-06, the Jan 13 low. Initial support has been defined at 108-00, the Jan 16 low.
- Cash tsys are trading 1.5-3bps higher today, the 2yr is +1.9bps at 4.226%, while the 10yr is +2.4bps at 4.541%. The 2s20s has steepened 0.50bps to 61bps.
- Fed-dated OIS have ~4bp of cuts priced in for March meeting and just short of 50bp by year-end
- Projected rate cuts through mid-2025 are steady to mildly lower vs. Thursday (*) levels as follows: Mar'25 at -3.9bp (-4.8bp), May'25 at -11.8bp (-12.9bp), Jun'25 at -22.6bp (-25.5), Jul'25 at -28bp (-30.5bp).
- The core index of personal consumption expenditure is expected to rise 0.2% m/m last month, up from 0.1% in November, economists forecast.
- Later today we have Personal Income & Spending, PCE Price Index & MNI Chicago PMI, while Fed Governor Michelle Bowman is scheduled to speak.
STIR: $-Bloc Markets Soften Over the Past Fortnight led By Canada
In the $-bloc, rate expectations through December 2025 have softened by 4-22bps over the past two weeks. Canada led the decline (-22bps), followed by Australia (-17bps) and New Zealand (-16bps), while the US saw a more modest reduction of 4bps. Factors contributing to these shifts include:
- BoC's rate cut and future guidance: The BoC's 25bp rate cut to 3%, while slower than previous moves, signalled potential for larger cuts in response to a trade war.
- Australian Q4 CPI miss: A slight miss on the Trimmed Mean core measure strengthened market expectations for near-term RBA easing, with a February rate cut probability at 91%.
- FOMC's unchanged rate and Powell's comments: The Fed maintained its target rate and Powell emphasised the need for further inflation progress or labour market weakness before further rate cuts.
- Looking ahead to December 2025, the projected official rates and cumulative easing across the $-bloc are as follows: US (FOMC): 3.86%, -47bps; Canada (BOC): 2.55%, -70bps; Australia (RBA): 3.48%, -84bps; and New Zealand (RBNZ): 3.23%, -123bps.
Figure 1: $-Bloc STIR (%)
Source: MNI – Market News / Bloomberg
JGBS: 10Y Leads Cheapening As Trump Tariffs Weigh, BoJ SOO on Monday
JGB futures are weaker and near session cheaps, -27 compared to settlement levels, aligning with the push higher in global yields following Trump tariff headlines. In addition to the 25% tariffs on Canada & Mexico, Trump mentioned he will impose tariffs on BRICS if they look to replace the USD in international trade.
- Cash US tsys are 2-3bps cheaper in today's Asia-Pac session.
- Focus also turns to the Fed coming out of the media Blackout and next week's key CPI & PPI inflation metrics ahead of the headline Employment data for January on Friday.
- Earlier, Tokyo Jan CPI was above estimates for the headline but in line with the core measures. Dec jobless rate edged down to 2.4%, while the job-to-applicant ratio was unchanged at 1.25.
- Dec IP (P) was better than forecast, up 0.3% m/m (0.2% est), while retail sales fell -0.7% m/m in Dec (-0.1% est).
- Cash JGBs are flat to 2bps cheaper. The benchmark 10-year yield is 2.2bps higher at 1.239% versus the cycle high of 1.262%.
- Swaps are cheaper, with rates 1-2bps higher.
- Monday, the local calendar will see Jibun Bank PMI Mfg and BoJ Summary of Opinions for the January MPM alongside BoJ Rinban Operations for 1-5-year and 10-25-year JGBs.
JAPAN DATA: Headline Tokyo CPI Beats, But Some Softness In Services Inflation
Tokyo Jan CPI was above estimates for headline (+3.4%y/y, versus 3.0% forecast and 3.1% from Dec). The core measures were as expected though. The ex fresh food measure rose 2.5% y/y (Dec was 2.4%), while ex fresh food and energy was 1.9% y/y (Dec was 1.8%). The metric which excludes all food and energy was 1.0% y/y, from 1.1% in Dec.
- Base effects likely helped the headline print, as the Jan 2024 y/y print was 1.8%. This should be less of a support in Feb, with the y/y pace from last year rebounding to 2.5% for this month
- In m/m terms, the headline CPI rose 0.4% after a 0.5% gain in Dec. The core measures also posted a positive gains. All of the monthly inflation was in goods though, up 1.3%m/m, with services easing 0.1%, ending a recent run of gains.
- By category, food was up 2.1%m/m, while transport rose 0.4%. We had drags from utilities, clothing and entertainment (off -1.6% m/m). This likely weighed on services inflation, although entertainment prices will bump around month to month.
- Food and utilities remained the strongest categories in y/y terms. Education is negative at -9.2%. Entertainment eased to 2.7%y/y from 4.5% in Dec, so a likely watch point from a services inflation standpoint.
- The headline trend reinforces the recent BoJ hike, see the chart below, but the above points to mixed underlying trends in early 2025.
Fig 1: Tokyo CPI Y/Y Trends
Source: MNI - Market News/Bloomberg
JAPAN DATA: Job's Market Remains Tight
Japan's Dec jobless rate edged down to 2.4%, from 2.5% in Nov, with the market expecting a steady 2.5% outcome. The job-to-applicant ratio was unchanged at 1.25, in line with market forecasts. The chart below plots this series (inverted on the chart) against the unemployment rate. The new jobs to applicant ratio rose to 2.26 in Dec from 2.25 in Nov, but remains sub cycle highs.
- The jobless rate is back to cycle lows, and still indicating health from a labor market standpoint. There has been concern around the modest BoJ hikes working against domestic growth, although the jobs market may lag such developments.
- The number of people in jobs rose 140k m/m, up from Dec's 100k rise. The labour force participation rate was slightly lower though at 63.4%.
Fig 1: Japan Jobless Rate Against Job To Applicant Ratio (Inverted White Line)
Source: MNI - Market News/Bloomberg
JAPAN DATA: Retail Sales Y/Y Momentum Slowly Improving
Japan preliminary Dec IP was slightly better than forecast, up 0.3%m/m (0.2% was forecast), while in y/y terms we were -1.1%, against a 2.2% forecast and -2.7% prior outcome. Retail sales fell -0.7%m/m in Dec, against a -0.1% forecast. In y/y terms we were +3.7% though, after a 2.8% rise in Nov (the market forecast was 3.2%).
- Whilst the Dec m/m retail sales dip was disappointing, the y/y retail sales trend improved through the second half of 2024, but remains sub 2023 +5% levels. Through positive real wage rises, the authorities and the BOJ are aiming for a continuing improvement in spending trends as we progress through 2025.
- IP y/y trends remain quite volatile, but have edged back closer to flat. METI sees output firmly in both Jan and Feb, although a government official stated this could be an over estimate (per Rtrs).
AUSSIE BONDS: Modestly Cheaper As Tariff Talk Pressures Global Yields Higher
ACGBs (YM -1.0 & XM -3.0) are weaker with global bonds following Trump tariff headlines. In addition to the 25% tariffs on Canada & Mexico, Trump also mentioned he will impose tariffs on BRICS if they look to replace the USD in international trade.
- Cash US tsys are cheaper following Trump tariff headlines, with the 3yr underperforming, up 3bps at 4.27%. The 10yr is +2bps at 4.54%.
- Focus also turns to the Fed coming out of the media Blackout and next week's key CPI & PPI inflation metrics ahead of the headline Employment data for January on Friday.
- Cash ACGBs are 1-3bps cheaper with the AU-US 10-year yield differential at -12bps.
- Swap rates are 1-2bps higher.
- The bills strip is flat to -3 across contracts.
- RBA-dated OIS pricing is flat to 2bps firmer across meetings today. Nevertheless, a 25bp rate cut is more than fully priced for April (134%), with the probability of a February cut at 90% (based on an effective cash rate of 4.34%).
- On Monday, the local calendar will see Retail Sales, Building Approvals, CoreLogic Home Values, S&P Global PMI Mfg, Melbourne Institute Inflation and ANZ-Indeed Job Advertisements.
- A new 21 March 2036 Treasury Bond is planned to be issued via syndication in the week beginning 3 February 2025 (subject to market conditions). The Joint Lead Managers are: Barrenjoey Markets Pty Ltd; Commonwealth Bank of Australia; National Australia Bank Limited; and UBS AG, Australia Branch.
BONDS: NZGBS: Closed At Session Cheaps After Trump Tariff Talk Weighs
NZGBs closed at the session’s worst levels, slightly cheaper with yields 1bp lower to 2bps higher. Yields had been as much as 4bps lower early in the session.
- With domestic data second-tier (home values and consumer confidence), the primary driver of the reversal was US tsys. Cash US tsys are cheaper following Trump tariff headlines, with the 3yr underperforming, up 3bps at 4.27%. The 10yr is +2bps at 4.54%.
- In addition to the 25% tariffs on Canada & Mexico, Trump mentioned he will impose tariffs on BRICS if they look to replace the USD in international trade.
- Focus also turns to the Fed coming out of the media Blackout and next week's key CPI & PPI inflation metrics ahead of the headline Employment data for January on Friday.
- The swap curve closed with a twist-steepener, with rates 1bp lower to 1bp higher.
- RBNZ dated OIS pricing closed flat to 5bps softer across meetings. 48bps of easing is priced for February, with a cumulative 123bps by November 2025.
- The local calendar is empty on Monday.
FOREX: Yen Unwinds Some Outperformance Amid Higher US Yields, Tariff Focus Later
Aggregate G10 shifts have been very muted so far in Friday trade. The BBDXY USD index is little changed, holding close to 1304.7, which isn't far off highs that were seen post earlier headlines that US President Trump will impose tariffs on Mexico and Canada tomorrow. Headlines crossed from BBG that Trump will sign executive orders at 3pm ET.
- USD/JPY has seen some modest shifts, the pair pull back to 153.92 before support emerged. We were last 154.35/40, little changed for the session. Earlier data showed stronger Tokyo CPI headline pressures, but core measures were close to expectations.
- US yields have ticked higher, the 10yr up over 2bps to 4.54%, with Trump tariff threats impacting. This has helped stabilize US-JP yield differentials.
- US equity futures are higher, led by Nasdaq futures as markets continue to digest earnings results.
- AUD and NZD have ticked higher, but both currencies are sub pre trump tariff headlines. AUD/USD was last 0.6230, while NZD/USD was near 0.5645. AUD/USD has seen support around the 0.6200 level, while NZD has been supported ahead of 0.5620. Data releases in both economies hasn't impacted sentiment.
- USD/CAD is very steady, last near 1.4480. We got close to 1.4600 late in Thursday trade as tariff headlines crossed. The 1 week risk reversal is very elevated near 2.50, highs back to 2020. Spot USD/MXN sits better within recent ranges, last near 20.68. Its 1 week risk reversal is higher, but within recent extremes.
- Looking ahead, outside of tariff related risks, we have some German regional inflation data. In the US we have the PCE, along with Fed speak from Bowman. The MNI Chicago PMI also prints.
FOREX: USD/CAD & USD/MXN 1 Week Risk Reversals Climb Amid Tariff Risk
A headline crossed earlier that US President Trump will sign executive at 3pm ET. Presumably this means 3pm Friday US time, although we haven't seen any other details at this stage. Speculation will also be that this might be executive orders for tariffs, particularly given late Thursday comments from the President around tariffs on Mexico and Canada to be instigated on Feb 1 (this Saturday).
- Spot moves so far today have been modest and biased against the USD for some G10 currencies, while MXN has recovered some ground, last near 20.67. USD/CAD is around 1.4480. Late Thursday highs in this pair got close to 1.4600.
- For both USD/CAD and USD/MXN we continue to see the 1 week risk reversals trend higher. In a relative sense, USD/CAD has seen a more extreme move, as the 1 week RR hits highs back to 2020. USD/MXN's 1 week RR is still sub 2024 highs at this stage, see the chart below.
- For USD/CAD in the next week, the largest volume of option expiries are at a 1.4600 strike (just under $3.2bn), followed by 1.44 with near $2.5bn. For USD/MXN it is at 20.20, just over $1.1bn, then 21.26, for $910mn.
Fig 1: USD/CAD & USD/MXN 1 Week Risk Reversals
Source: MNI - Market News/B
ASIA STOCKS: Asian Equites Mixed As South Korean Stocks Struggle
- Asian equities are mixed after sharp losses in South Korean chipmakers as the market reopened from holidays and caught up with concerns over AI semiconductor demand. SK Hynix plunged over 10%, and Samsung fell 2.80% after missing profit expectations, following the global selloff triggered by Chinese AI startup DeepSeek’s cheaper model. Traders are debating whether this is a short-term correction or a deeper shift in the AI market.
- Elsewhere, Singapore’s Straits Times Index surged nearly 2%, buoyed by defensive positioning and dividend yield appeal amid trade uncertainty. Australia’s ASX 200 is 0.50% higher on strength in mining stocks. Japanese equities are mostly higher, with the Nikkei 225 supported by tech optimism following strong ASML results, while the Topix remains in the green however has been weighed down by disappointing earnings from Oriental Land and Hino Motors.
- Broader sentiment remains cautious as Trump’s new tariffs on Canada and Mexico add trade uncertainty, while AI-sector volatility continues to weigh on semiconductor-heavy markets.
Oil Markets Await News on Canadian Tariffs.
- The threat of tariffs on Canadian oil imports saw a short term spike in oil prices in Thursday’s US trading session.
- President Trump was quoted saying “We don’t need the products that Canada have. We have all the oil that you need. We have all the trees you need,” Trump remarked before indicating that a decision will be made Thursday evening on the timeframe for the application of tariffs. (as per BBG)
- The risk is (at present) that markets become dismissive of tariff threats and ignore them, running the risk that they materialize.
- US currently imports approximately 4 million barrels of oil a day from Canada for refining, with several refineries business models set up for almost exclusive supply of Canadian ‘sour’ crudes.
- This saw Valero Energy Corp announce that it expects (should the tariffs be applied this Saturday as indicated) that refiners will be forced to cut production, potentially putting upward pressure on prices, rather the lower prices as Trump wants.
- There is evidence to suggest that oil flow throw the Baltic Sea port of Ust-Luga in Russia appear to be impaired or even halted following drone attacks by Ukraine.
- The port exports upward of 650,000 barrels per day, or as much as 20% of Russia’s seaborne exports.
- WTI finished higher for the day, but there was significant intra-day volatility.
- Opening at US$73, WTI traded down to $72.02, spiking to $73.84 before closing ahead at $72.70 and grinding higher throughout the day to $73.41.
- For the week WTI is on track for over a 1.5% decline
- Brent opened at US$76.77, trading down to a low of $76, reaching a high of $77.63 before closing at $77.25 only to drift higher throughout the day to $77.48.
- For the week, Brent is on track to finish over 1.2% lower.
- With no news yet from the White House on tariffs for Canada, oil markets are on hold waiting to see the next move.
Gold On Track for Strong Week Despite Monday’s Losses.
- A softer USD overnight arose from US economic data missing estimates.
- US fourth quarter GDP rose at +2.3%, down from +3.1% in the previous quarter and missing estimates of +2.6% suggesting rate hikes could be on the cards, causing bond yields to rally and the USD to fall.
- This created a near perfect scenario for Gold and it rallied accordingly, up over 1% on the day to fully wipe out Monday’s losses.
- Starting the day at US$2,793.84, gold did very little prior to the data release before rallying hard to a high of $2,798.58, before closing at $2,793.84, before edging up to $2,796.34.
- Gold got off to a poor start this week but finished strong and is on track to finish +0.90% higher.
- The data is somewhat in opposition to the views from the FED yesterday when they held rates steady, indicating that they could be on hold for some time.
- Like most commodities, gold traders will watch closely for news on whether tariffs will be levied on Canada in the coming days.
CNH: USD/CNH Testing Above 20-day EMA Resistance, Options Mkts Well Behaved
USD/CNH is creeping higher, last around session highs at 7.2985. This puts us back above the 20-day EMA, albeit just. We haven't been above this resistance point since Trump's inauguration on January 20. Highs from that day were close to 7.3400, which could be an upside target if Trump delivers on tariff threats.
- Onshore markets don't return until next Wednesday, so CNH will remain without an onshore CNY anchor point in the near term. The USD/CNH-USD/CNY spread is currently over 500pips, given a USD/CNY spot close of 7.2446 before LNY holidays. The spread has gotten wider in prior years, with blips above +600pips, but they haven't been sustained.
- A reminder that Trump stated late on Thursday, "*TRUMP: CHINA'S GOING TO END UP PAYING A TARIFF AS WELL, *TRUMP: WE'RE IN THE PROCESS OF DOING CHINA TARIFF, “China has to stop sending fentanyl into our country and killing our people” (per BBG). These remarks came after Trump said he would impose 25% tariffs on Mexico and Canada tomorrow.
- Relative to USD/CAD and USD/MXN risk reversals and implied vols, the market is not expecting fireworks in the USD/CNH market in the coming week. This likely reflects that China tariffs may not be announced tomorrow, whilst in addition the China authorities are also likely to gauge against a rapid yuan fall.
ASIA FX: USD/Asia Pairs Higher, USD/THB Up From Lows But Still Outperforming
As some markets return from recent LNY breaks, the bias for the most part is a stronger USD backdrop. A firmer USD backdrop over the past week, coupled with near term tariff risks is weighing. THB is an exception though.
• USD/KRW is up 1.65%, the pair last near 1455 and closing in on pre inauguration levels around 1460. The local stock bourse is off over 1% amid recent tech equity wobbles (with a firmer US tech equity futures backdrop not helping at this stage).
• USD/MYR spot is back to 4.4400, although still well below earlier Jan highs above 4.5000.
• USD/IDR is also climbing higher, last back above 16300. Earlier Jan highs were around 16385, so not too far away. This may draw a response from the authorities though. USD/PHP is more steady, last in the 58.35/40 range.
• USD/THB is down through, generally bucking the stronger USD trend. The pair was last 33.65/70, up around 0.10% in baht terms. Session lows at 33.615 were very close to early 2025 lows.
• Baht is now tracking as the strongest performer in Jan in the EM Asia FX space. Less exposure to tariff threats/risks (at least at this stage) is likely helping, while gold has also hit fresh record highs. Positives around tourism inflows may also be helping from a FX flow standpoint.
• We did have Thailand IP figures earlier which were worst than forecast, off -2%y/y. Later on Dec trade and current account figures are out.
MALAYSIA: Country Wrap: Official Reserves Drop to Lowest Since July.
- Malaysia’s official reserve assets amounted to US$116.22 billion, while other foreign currency assets stood at US$4.50 million as at end-December 2024, said Bank Negara Malaysia (BNM). (source: BBG).
- Following two weak days at the start of the week, then holidays, Malaysia’s FTSE KLCI Index has rebounded today to be up +0.28%.
- MYR: like its regional peers, it was a tough day for the Ringgit today, down -.929% to 4.4350.
- Bonds: were seemingly oblivious to the volatility unchanged across the curve with MGS 10YR 3.805%
INDIA: Country Wrap: Trump Threatens BRICS.
- President Trump reiterated the US requires a commitment from BRICS countries they will not replace the dollar or they will face “100% tariffs,” according to his Truth Social post. (source: BBG).
- India’s central bank bought 200 billion rupees ($2.3 billion) of bonds as planned at the first open-market auction in almost four years. (source: BBG).
- India’s NIFTY 50 has recovered from Monday’s fall and again is up today by +0.71% and on track to finish over 1% higher.
- INR: as with regional peers, the rupee is under pressure today down .03% in early trade at 86.65.
- Bonds: despite news of the purchases by the Central Banks, bonds are opening quiet with the IGB 10YR unchanged at 6.692%
SOUTH KOREA: Country Wrap : Deepseek Impact Felt on Korea Re-Open.
- Shares of SK Hynix Inc., a key supplier to Nvidia Corp., tumbled more than 11% in post-holiday catchup trading after Chinese startup DeepSeek shocked the AI world. (source: BBG).
- South Korean power equipment makers for AI data centers drop on DeepSeek worry as stock markets reopen after Lunar New Year holiday. (source: BBG).
- Having been closed this week, the KOSPI opened today and had to adjust to the Deepseek news and fell -1.15%.
- KRW: like its regional peers, the Won had a tough day tumbling -.862% to 1,455.10
- Bonds: a strong rally led by the front end points to the bond market starting to think that a cut in rates is coming. KTB 2YR at 2.648% is 6bps lower today.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 31/01/2025 | 0700/0800 | ** |  DE | Retail Sales |
| 31/01/2025 | 0730/0830 | ** |  CH | Retail Sales |
| 31/01/2025 | 0745/0845 | *** |  FR | HICP (p) |
| 31/01/2025 | 0745/0845 | ** | FR | PPI |
| 31/01/2025 | 0855/0955 | ** | DE | Unemployment |
| 31/01/2025 | 0900/1000 | *** | DE | North Rhine Westphalia CPI |
| 31/01/2025 | 0900/1000 | *** | DE | Bavaria CPI |
| 31/01/2025 | 0900/1000 | ** |  EU | ECB Consumer Expectations Survey |
| 31/01/2025 | 1000/1100 | ** |  IT | PPI |
| 31/01/2025 | 1300/1400 | *** | DE | HICP (p) |
| 31/01/2025 | 1330/0830 | *** |  CA | Gross Domestic Product by Industry |
| 31/01/2025 | 1330/0830 | *** |  US | Personal Income and Consumption |
| 31/01/2025 | 1330/0830 | *** | US | Employment Cost Index |
| 31/01/2025 | 1330/0830 | *** | CA | Gross Domestic Product by Industry |
| 31/01/2025 | 1330/0830 | US | Fed Governor Michelle Bowman | |
| 31/01/2025 | 1445/0945 | *** | US | MNI Chicago PMI |
| 31/01/2025 | 1600/1100 | CA | Finance Dept monthly Fiscal Monitor (expected) | |
| 31/01/2025 | 1800/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |