EXECUTIVE SUMMARY
- FED IN NO HURRY, CUTS LIKELY OVER MEDIUM-TERM – JEFFERSON
- USPS HAS SUSPENDED PARCELS FROM HONG KONG AND CHINA
- TRUMP'S GAZA COMMENTS COULD RADICALLY ALTER US MIDDLE EAST POLICY
- ECB WAGE TRACKER CONTINUES TO POINT TO DECELERATION
Figure 1: Eurozone PPI (Y/Y, %) edges higher as energy base effects fade
Source: MNI, Eurostat
NEWS
FED (MNI): Fed in No Hurry, Cuts Likely Over Medium-Term - Jefferson
Federal Reserve Vice Chair Philip Jefferson said Tuesday the current stance of monetary policy is well positioned to deal with both sides of the central bank's mandate, though he continues to expect a gradual reduction in interest rates toward a more neutral stance over the medium term. "The U.S. economy is starting the year in a good position. I expect inflation’s slow descent to continue, and I anticipate that economic growth and labor market conditions will remain solid," he said according to prepared remarks. "As long as the economy and labor market remain strong, I see it as appropriate for the Committee to be cautious in making further adjustments."
US/CHINA (AP News): USPS Has Suspended Parcels From Hong Kong and China
Americans are likely to pay more for products from popular Chinese e-commerce platforms like Shein and Temu as the U.S. Postal Service said it would stop accepting parcels from China and Hong Kong. The move was announced Tuesday, coming after the U.S. imposed an additional 10% tariff on Chinese goods and ended a customs exception that allowed small value parcels to enter the U.S. without paying tax. Canada and Mexico managed to negotiate a month-long reprieve from 25% tariffs threatened by U.S. President Donald Trump. It will likely impact online shopping destinations like Shein and Temu, popular with younger shoppers in the U.S. for cheap clothing and other products, usually shipped directly from China.
US/MIDDLE EAST (MNI): Trump's Gaza Comments Could Radically Alter US Middle East Policy
US President Donald Trump's comments on 4 Feb regarding the Gaza Strip and the US' intention to 'take over' the territory - if pursued - will dramatically alter decades-long US policy stances in the region. In a meeting with Israeli PM Benjamin Netanyahu at the White House, Trump said that the US should "take over" Gaza with a "long-term ownership position" that could include US troops on the ground, adding "we will do a job with it too. We'll own it". This would upend the US' long-standing support for a two-state solution. Indeed, Trump also said an announcement on the situation in the West Bank would be forthcoming in the next month.
US (FT): US Treasury Moves to Quell Fears of Elon Musk Taking Over Payments System
The US Treasury has sought to calm fears over Elon Musk’s access to its vast payments system, insisting no transactions have been cancelled, despite the billionaire’s claim to be “rapidly shutting down” remittances. “The ongoing review of Treasury’s systems is not resulting in the suspension or rejection of any payment instructions submitted... by other federal agencies across the government,” Jonathan Blum, a principal deputy assistant secretary wrote to members of Congress on Tuesday.
ECB (MNI): BLS Better Than r* to See Restrictiveness - Guindos
The European Central Bank’s Bank Lending Survey “provides a much better indicator of the restrictiveness” of monetary policy than other more academic concepts like the neutral rate, ECB vice president Luis de Guindos said in an interview with Hospodarske Noviny on Wednesday. “Using it [neutral rate] as a reference for monetary policy decisions is not the right approach”, Guindos said, noting that the great level of uncertainty calls for a “more pragmatic approach, placing less weight on unobservable variables or model-based estimates with shortcomings and results expressed in wide ranges”.
FRANCE (BBG): French Premier Set to Survive No-Confidence Votes, Adopt Budget
French Prime Minister Francois Bayrou is set to ride out two no-confidence votes on Wednesday, giving him the stability needed to implement a delayed 2025 budget. He used a special constitutional provision on Monday to push the bill through parliament without a vote, triggering ballots that could force him to resign like his predecessor Michel Barnier in December. But the Socialists, one of the parties that voted to eject Barnier, have said they will abstain this time, likely dooming the motions to failure.
UK (The Times): Rachel Reeves Left With Tough Choice as Fiscal Headroom Dwindles
Rachel Reeves has been warned that she will have no choice but to cut spending or increase taxes because any leeway in the public finances has “evaporated”. The Office for Budget Responsibility gave the Treasury the first official estimates on the state of the economy on Tuesday, before the chancellor’s spring statement next month. Economists said the government’s £9.9 billion in “fiscal headroom” - spare money against the government’s spending plans - had been wiped out by a combination low growth, higher borrowing costs and higher-than-expected interest rates.
UK (FT): US National Security Adviser to Discuss Chagos Islands Deal With UK Counterpart
The UK’s national security adviser Jonathan Powell will discuss a proposed deal over the Chagos Islands with his US counterpart Mike Waltz in Washington this week, according to people familiar with the matter. Britain is seeking US approval for the terms of the deal that would hand sovereignty of the UK overseas territory in the Indian Ocean to Mauritius, in exchange for securing the medium-term future of a crucial UK-US military base on Diego Garcia.
AUSTRIA (MNI): FPÖ-ÖVP Coalition Talks Continue Despite Reports of a Halt
Coalition talks between the far-right Freedom Party of Austria (FP) and the conservative Austrian People's Party (VP) continue this morning despite reports on the night of 4 Feb that discussions had completely halted. VP lawmaker Wolfgang Hattmannsdorfer said in an interview that the prospect of talks succeeding was 'fifty-fifty'. After discussions between FP leader Herbert Kickl and VP head Christian Stocker on 4 Feb, the VP convened a party executive committee at short notice. Reports suggested that this indicated trouble in talks, but the FP posted on X that the meeting was routine and talks will continue.
S. KOREA (BBG): Top Korea Listing in Years Flops in Debut as IPO Fever Cools
South Korea’s biggest new listing in more than two years got off to weak start as LG CNS Co. fell on its Seoul trading debut after a 1.2 trillion won ($821 million) initial public offering. Shares of the diversified technology-services unit of LG Group sank 9.9% to 55,800 won, while the broader Kospi index rose 1.1%. That’s amid concerns the stock was overpriced in the recent IPO, when it was sold at the top of the marketed range after it was snapped up by local investors.
CORPORATE (BBG): Alphabet Slides After Cloud Sales Fall Short of Expectations
Google parent Alphabet Inc. posted fourth-quarter revenue that missed analysts’ expectations after growth in its cloud business slowed, raising concern from investors about the billions the company is spending on artificial intelligence. Quarterly sales, excluding partner payouts, were $81.6 billion, Alphabet said Tuesday in a statement. Analysts had projected $82.8 billion, according to data compiled by Bloomberg. The shares fell more than 9% in after-hours trading.
COMMODITIES (BBG): Wheat Hits Three-Month High as Market Awaits US-China Talks
Wheat hit the highest in almost three months as traders considered China’s cautious approach to US tariffs, and the market awaited details on possible talks between the leaders of the world’s two biggest economies. It comes as a fresh trade war simmers between Washington and Beijing, expectations of which have roiled grains markets over the past week. But China’s retaliatory tariffs, announced on Tuesday in response to the US’ opening move, are being viewed as measured and a sign that Beijing is trying to avoid a worst-case scenario of a severe escalation, according to analysis by Bloomberg Economics.
DATA
EUROZONE DATA (MNI): ECB Wage Tracker Continues to Point to Deceleration
The ECB’s latest wage tracker update saw immaterial updates relative to the December 2024 vintage. The path for wages – based on signed collective bargaining agreements excluding one-off payments – was revised a shade higher through 2025. The data continues to underscore ECB expectations for wages to moderate through this year, eventually helping to drive disinflation in services. As of Q4 2025, the ECB’s headline wage tracker (including smoothed one-off payments) was 1.5% Y/Y, compared to 1.4% Y/Y in the December update. This is still a notable deceleration from the 5.3% Y/Y growth expected in Q4 2024.
EUROZONE DATA (MNI): PPI Y/Y Slightly Higher Than Expected as Energy Base Effects Fade
- EUROZONE DEC PPI +0.4% M/M, +0% Y/Y
Eurozone PPI in December was stable at 0.0% Y/Y, making it marginally above expectations (-0.1% consensus, -1.2% prior). This is the first non-deflationary print since April 2023 driven by energy base effects working their way out of the Y/Y figure. Note that excluding energy the PPI index has remained unchanged since September 2024, whereas including energy it has been increasing. Three of the five sub-components saw Y/Y pickups, and the remaining two remained stable. Energy producer prices fell at a softer pace of 1.7% Y/Y (vs -5.1% in Nov and -11.2% in Oct).
UK DATA (MNI): Stagflationary Signals in Jan Services PMI
- UK FINAL JAN SRVCS PMI 50.8 (FLASH: 51.2); DEC 51.1
- UK FINAL JAN COMPOSITE PMI 50.6 (FLASH: 50.9); DEC 50.4
Small downward revision to the UK January services PMI (50.8 vs 51.2 flash, 51.1 prior). The composite reading nonetheless ticked up to 50.6 (vs 50.9 flash, 50.4 prior). Overall, the services release screens as stagflationary, with wage-driven input cost increases being passed through to output charges, and the employment outlook remaining soft.
FRANCE DATA (MNI): France IP Disappoints; Driven by Weak Vehicle Production
- FRANCE DEC INDUSTRIAL PRODUCTION -0.4% M/M, -1.7% Y/Y
- FRANCE DEC MANUFACTURING OUTPUT -0.7% M/M, -2.6% Y/Y
France industrial production was weaker than expected in December at -0.4% M/M (vs -0.2% consensus, 0.1% revised prior from 0.2%). This is below the 2024 M/M average of -0.1%. On an annual basis it also disappointed at -1.7% Y/Y (vs -1.2% consensus, -1.1% prior) - the weakest annual reading since May 2024. The decrease was driven by manufacturing production falling 0.7% M/M (vs an increase of 0.2% in November) - the lowest sequential print since May 2024. Note manufacturing production makes up 82.53% of the overall industrial production weighting.
ITALY DATA (MNI): Output Charge Inflation Picks Up in Jan Services PMI
- ITALY JAN SRVCS PMI 50.4 (FCAST 50.4); DEC 50.7
The Italian January services PMI was in line with consensus at 50.4 (vs 50.7 prior). With the manufacturing PMI only a little below consensus on Monday, the composite reading was steady at 49.7 (the third consecutive month in contractionary territory). As in Spain, there was evidence of Italian services firms passing on increases in input costs to output charges in January
SPAIN DATA (MNI): Composite PMI Still Comfortably Expansionary Despite Services Miss
- SPAIN JAN SRVCS PMI 54.9 (FCAST 56.8); DEC 57.3
The Spanish services PMI was a little weaker-than-expected at 54.9 (vs 56.8 cons, 57.3 prior). Taken alongside a lower-than-expected manufacturing PMI on Monday, the composite index ticked down to 54.0 (vs 55.9 cons, 56.8 prior). The composite index has nonetheless been in expansionary territory since November 2023, notably outperforming other major Eurozone economies. We highlight that input price increases were passed through to output charges in January. A similar dynamic was also seen in the manufacturing PMI.
SWEDEN DATA (MNI): Jan Services PMI Details Not Overly Strong
The January services PMI just about remained in expansionary territory at 50.1 (vs 51.2 prior). The series is reasonably volatile month-to-month, but has generally trended higher alongside the Economic Tendency Indicator's services sentiment series since the start of 2024. This contrasts with the manufacturing PMI, which has diverged from the Economic Tendency Indicator's manufacturing sentiment series in recent months.
CHINA DATA (MNI): China Caixin Services PMI Expansion Slows in Jan
MNI (Beijing) China’s Caixin Services PMI reached 51.0 in January, down 1.2 points from December but remained above the expansionary level of 50 for the 25th consecutive month, Caixin reported on Wednesday. Supply and demand growth slowed in January to the lowest level in four months, said Wang Zhe, Senior Economist at Caixin Insight Group, in a statement on the firm’s website, but noted external demand rebounded from a decline in December.
CHINA DATA (MNI): China Spring Festival Trips Up 5.9% Y/Y
MNI (Beijing) China saw 501 million domestic trips during the Spring Festival holiday, up 5.9% on the 2024 holiday, the Ministry of Culture and Tourism announced on Wednesday. Total domestic spending reached CNY677 billion over the festive period, increasing 7.0% from 2024, the Ministry added.
JAPAN DATA (MNI): Japan Dec Positive Real Wages Widen to 0.6%
Inflation-adjusted real wages, a barometer of household purchasing power, posted their second straight monthly rise in December, up 0.6% against November's 0.5%, preliminary data released by the Ministry of Health, Labour and Welfare on Wednesday showed. The year-on-year rise in total CPI minus imputed rents accelerated to 4.2% in December from 3.1% in November, but real wages were boosted by higher nominal wages and bonuses.
NEW ZEALAND DATA (MNI): NZ Unemployment at 5.1% Over Q4
The New Zealand unemployment rate rose 30 basis points to 5.1% over Q4, in line with market expectations and the Reserve Bank of New Zealand’s most recent forecast, Stats NZ data showed Wednesday. The underutilisation rate increased to 12.1% from 11.6%, while the employment rate dropped to 67.4% from 67.7%. Wages meanwhile increased 3.3%, the data showed.
FOREX: Best Wage Growth in Over 30 Years Underpins JPY Convincing Rally
- JPY strength stands out into the Wednesday crossover, with USD/JPY breaking to new pullback lows and taking out both the 200- and 100-dmas in the process. This marks a major technical break lower and expands the downside range, with markets looking to 151.06 as the next significant support. Late January lows at 153.72 were twice tested, a level that coincided with the 50% retracement for the upleg posted off the December low, raising the significance of this morning's price action.
- Japanese wages numbers have proved key here. Nominal wages rose at the fastest pace in over 25 years for the December Y/Y reading - removing another hurdle to the next tightening phase from the Bank of Japan. The next 25bps hike isn't well priced until the September meeting - leaving the front-end of the OIS curve with plenty of room to tighten further should this trend be sustained.
- The greenback is the worst performer in G10, as markets pick up on the prevailing theme from the late Tuesday session. The scale of the short-term USD Index pullback is noteworthy, but is yet to challenge to the underlying uptrend. It's when the index drops through 106.969 that markets will become more concerned - particularly if tied with a convicingly dovish turn in Fed pricing for 2025.
- ISM services data crosses later today after the final PMIs for January. The employment subcomponent should take particular focus given the proximity to Friday's payrolls print, for which today's ADP Employment Change should also feature. Markets expect services to remain the stronger driver of US growth, while ADP is seen ticking higher to +150k from +122k.
- Central bank speak picks up today after a quieter start to the week. Lane speaks from the ECB, while Barkin, Goolsbee and Bowman represent the FOMC.
EGBS: Bund Futures Pierce Monday's High, Following USTs Higher
Bund futures have pierced Monday’s high, currently +47 ticks at 133.59. Regional data/speakers have not been market moving, with major EGB futures following USTs higher through the session.
- Today’s rally in Bunds exposes 133.73 (50.0% retracement of the Dec 2 - Jan 14 bear leg) and 133.86 (Jan 2 high) on the upside.
- The German curve has bull flattened, with 30-year yields ~4.5bps lower today.
- 10-year EGB spreads are within 0.5bps of yesterday’s closing levels. French PM Bayrou is expected to survive two censure motions later this afternoon.
- Eurozone January services/composite PMIs were broadly in line with flash prints, while December PPI was close to consensus.
- The ECB wage tracker was little changed compared to the December release, still pointing to a deceleration of wage growth this year.
- ECB Vice President de Guindos played down the role of the neutral rate in setting near-term policy an interview. This comes ahead of an ECB staff report on the concept on Friday.
- Global focus turns to the US Quarterly Refunding Announcement at 1330GMT/1430CET, with US services sentiment data also due this afternoon.
GILTS: Firmer on Weaker Stocks & Solid Green Auction Demand
Gilts extend higher, with core global FI markets supported by the move lower in e-minis (tech earnings and trade war worry drive e-minis lower).
- Decent demand metrics at the latest 1.50% Jul-53 green gilt auction may have factored in during recent trade.
- The auction cover topped the average across all re-openings since February ’23 (3.20x vs. average 2.94 & high of 3.26x), while the tail was narrow at 0.3bp and the low price cleared above pre-auction mids.
- Futures as high as 93.47, +70 on the day, as the bullish short-term corrective phase remains intact.
- Contract nears resistance at the Feb 3 high (93.54).
- A break there would expose Fibonacci resistance (93.64) which protects round-number resistance (94.00).
- Yields 3.5-7.0bp lower as the curve flattens, year-to-date lows intact across all benchmarks.
- BoE-dated OIS to fresh cycle dovish extremes of ~85.6bp.
- SONIA futures flat to +7.0. Dec high in SFIZ5 (96.190) untested.
- Cross-market and macro cues are set to dominate ahead of tomorrow’s BoE decision.
- Our full preview of the BoE decision can be found here.
EQUITIES: Eurostoxx 50 Futures Fully Reverse Monday's Sell-Off
Eurostoxx 50 futures have recovered from Monday’s low. However, the sharp reversal lower earlier this week signals the end of the recent bull run - for now - and the start of a corrective cycle. Price has traded through the 20-day EMA, at 5170.66. A resumption of the bear leg would pave the way for a move towards the 50-day EMA, at 5065.54. On the upside, key resistance and the bull trigger has been defined at 5327.00, the Jan 31 high. Monday’s initial sell-off in the S&P E-Minis contract and breach of support at 5948.00, the Jan 27 low, strengthens a bearish threat and cancels - for now - a recent bullish theme. An extension down would open 5892.37, a Fibonacci retracement point. Initial resistance is at 6069.00, Tuesday’s intraday high. Gains are considered corrective, however, a stronger rally would expose key resistance at 6178.75, the Dec 6 high.
- Japan's NIKKEI closed higher by 33.11 pts or +0.09% at 38831.48 and the TOPIX ended 7.39 pts higher or +0.27% at 2745.41.
- Elsewhere, in China the SHANGHAI closed lower by 21.113 pts or -0.65% at 3229.488 and the HANG SENG ended 192.87 pts lower or -0.93% at 20597.09.
- Across Europe, Germany's DAX trades lower by 88.4 pts or -0.41% at 21417.27, FTSE 100 lower by 2.11 pts or -0.02% at 8568.67, CAC 40 down 31.12 pts or -0.39% at 7874.96 and Euro Stoxx 50 down 15.59 pts or -0.3% at 5248.84.
- Dow Jones mini down 144 pts or -0.32% at 44553, S&P 500 mini down 40.5 pts or -0.67% at 6022.5, NASDAQ mini down 225.75 pts or -1.04% at 21443.
Time: 09:50 GMT
COMMODITIES: WTI Futures Continue to Trade Just Ahead of Support at 50-Day EMA
Last week’s move down in WTI futures marked an extension of the current corrective cycle. The 20-day EMA has been breached and attention is on support around the 50-day EMA, at $72.30 (pierced). A clear break of the 50-day average would suggest scope for a deeper retracement. On the upside, a reversal higher would refocus attention on $79.48, the Apr 12 ‘24 high and a key resistance. A bull cycle in Gold remains in play. Last week’s extension higher and this week’s appreciation, confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull mode position too, highlighting a dominant uptrend. Sights are on $2867.5 next, a Fibonacci projection. The first key support to watch is $2698.4, the 50-day EMA. The 20-day EMA is at $2746.5.
- WTI Crude down $0.64 or -0.88% at $72.07
- Natural Gas down $0.05 or -1.41% at $3.207
- Gold spot up $27.31 or +0.96% at $2870.78
- Copper up $2.55 or +0.59% at $437.75
- Silver up $0.3 or +0.93% at $32.4715
- Platinum up $13.66 or +1.41% at $981.72
Time: 09:50 GMT
| Date | GMT/Local | Impact | Country | Event |
| 05/02/2025 | 1200/0700 | ** |  US | MBA Weekly Applications Index |
| 05/02/2025 | 1315/0815 | *** | US | ADP Employment Report |
| 05/02/2025 | 1330/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 05/02/2025 | 1330/0830 | ** | CA | International Merchandise Trade (Trade Balance) |
| 05/02/2025 | 1330/0830 | ** | US | Trade Balance |
| 05/02/2025 | 1330/0830 | *** | US | Treasury Quarterly Refunding |
| 05/02/2025 | 1400/1500 |  EU | ECB's Lane at Euro area in 2025 event and Q&A | |
| 05/02/2025 | 1400/0900 | US | Richmond Fed's Tom Barkin | |
| 05/02/2025 | 1445/0945 | *** | US | S&P Global Services Index (final) |
| 05/02/2025 | 1445/0945 | *** | US | S&P Global US Final Composite PMI |
| 05/02/2025 | 1500/1000 | *** | US | ISM Non-Manufacturing Index |
| 05/02/2025 | 1500/1000 | ** | US | housing vacancies |
| 05/02/2025 | 1530/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 05/02/2025 | 1800/1300 | US | Chicago Fed's Austan Goolsbee | |
| 05/02/2025 | 2000/1500 | US | Fed Governor Michelle Bowman | |
| 06/02/2025 | 0030/1130 | ** |  AU | Trade Balance |
| 05/02/2025 | 0030/1930 | US | Fed Vice Chair Philip Jefferson | |
| 06/02/2025 | 0645/0745 | ** |  CH | Unemployment |
| 06/02/2025 | 0700/0800 | ** |  DE | Manufacturing Orders |
| 06/02/2025 | 0700/0800 |  SE | Flash CPI | |
| 06/02/2025 | 0830/0930 | ** | EU | S&P Global Final Eurozone Construction PMI |
| 06/02/2025 | 0930/0930 | ** |  GB | S&P Global/CIPS Construction PMI |
| 06/02/2025 | 1000/1100 | ** | EU | Retail Sales |
| 06/02/2025 | 1200/1200 | *** | GB | Bank Of England Interest Rate |
| 06/02/2025 | 1200/1200 | *** | GB | Bank Of England Interest Rate |
| 06/02/2025 | 1230/1230 | GB | BOE MPR press conference | |
| 06/02/2025 | 1330/0830 | *** | US | Jobless Claims |
| 06/02/2025 | 1330/0830 | ** | US | WASDE Weekly Import/Export |
| 06/02/2025 | 1330/0830 | ** | US | Preliminary Non-Farm Productivity |
| 06/02/2025 | 1400/1400 | GB | Decision Maker Panel data | |
| 06/02/2025 | 1500/1000 | * | CA | Ivey PMI |
| 06/02/2025 | 1530/1030 | ** | US | Natural Gas Stocks |
| 06/02/2025 | 1630/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 06/02/2025 | 1630/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 06/02/2025 | 1900/1400 | *** |  MX | Mexico Interest Rate |
| 06/02/2025 | 1930/1430 | US | Fed Governor Christopher Waller | |
| 06/02/2025 | 2200/1700 | CA | BOC Governor speech at BIS conference | |
| 06/02/2025 | 2210/1710 | US | Dallas Fed's Lorie Logan | |
| 07/02/2025 | 2330/0830 | ** |  JP | Household spending |