EXECUTIVE SUMMARY
- TRUMP RAISES EU TARIFF THREAT, PLANS CANADA AND MEXICO CALLS
- BEIJING PREPARES ITS OPENING BID TO TALK TRADE WITH TRUMP: WSJ
- EUROZONE HEADLINE INFLATION HIGHER ON ENERGY COSTS
- UPWARD REVISION TO EZ MANUFACTURING PMI, EMPLOYMENT SIGNALS WEAK
Figure 1: USD/MXN rallies as much as 3%, reaches highest since 2022
Source: MNI/Bloomberg
NEWS
US (BBG): Trump Raises EU Tariff Threat, Plans Canada and Mexico Calls
US President Donald Trump ramped up his tariff threats to the European Union while saying he would speak with the leaders of Canada and Mexico, as stock markets sank following a hectic weekend that saw prospects for a trade war turn into reality. In remarks to reporters on Sunday night, Trump said he would hold separate calls on Monday morning with Canadian Prime Minister Justin Trudeau, as well as with the Mexican leadership, after announcing 25% tariffs on the US’s neighbors and top trading partners. The levies are set to take effect on Tuesday, barring a last-minute deal.
US/CHINA (WSJ): Beijing Prepares Its Opening Bid to Talk Trade With Trump
Beijing is readying an opening bid to try to head off greater tariff increases and technology restrictions from the Trump administration - a sign that China is eager to get trade talks going. However, what it is prepared to offer, according to people in both capitals familiar with Beijing’s thinking -chiefly focused on going back to a previous trade deal that didn’t work out - is likely to intensify debates in Washington over how to negotiate with China.
US (BBG): Musk Outlines Scope of Plan for DOGE Cuts, Starting With USAID
Elon Musk, who now runs the government efficiency initiative he calls DOGE, sketched out plans for aggressive cuts to US spending and regulations that include wiping out the US Agency for International Development - and suggested the bond market should thank him for it. “We’ve just got to do wholesale spring cleaning” of US regulations, Musk said during an X Spaces session after midnight. In one of his biggest planned cuts to date, the billionaire backer of Donald Trump said his group is in the process of trying to shut down USAID, the foreign aid agency codified by Congress.
US (BBG): Trump Says Fed Made the Right Call Last Week to Pause Rate Cuts
US President Donald Trump said the Federal Reserve was right to pause its rate-cutting path in its decision last week, a break from his penchant for calling for lower rates. “I’m not surprised,” Trump told reporters upon arriving in Washington on Sunday evening. “Holding the rates at this point was the right thing to do.”
US/UK (Telegraph): Trump Says EU Tariffs Coming ‘Soon’ But ‘Out of Line’ UK Might be Spared
Donald Trump has warned that the UK is “out of line” in its trade with the US but suggested the imbalance could be “worked out”. The US President said imposing tariffs on the UK “might happen” before pointing his barrel at the European Union, who he said could expect levies “pretty soon”. “The UK is way out of line, and we’ll see,” Mr Trump told reporters as he returned to Washington from Mar-a-Lago estate in Florida. “But European Union is really out of line. The UK is out of line but I’m sure that one, I think that one can be worked out. But the European Union, it’s an atrocity what they’ve done.”
US/RUSSIA (RTRS): Saudi Arabia, UAE Seen as Possible Venues for Trump-Putin Summit, Two Russian Sources Say
Saudi Arabia and the United Arab Emirates are seen by Russia as possible venues for a summit between U.S. President Donald Trump and Russian President Vladimir Putin, two Russian sources with knowledge of the discussions told Reuters. Trump has said he will end the war in Ukraine as soon as possible and said he is ready to meet with Putin. Putin congratulated Trump on his election and stated he is ready to meet Trump to discuss Ukraine and energy.
MEXICO (BBG): Sheinbaum to Announce Measures Against Tariffs on Monday
Mexican President Claudia Sheinbaum said she will announce early Monday the details of her government’s “Plan B” to defend the country against US tariffs. After US President Donald Trump ordered 25% tariffs on exports from Mexico on Saturday, Sheinbaum said she was asking her economy minister to respond with tariff and non-tariff measures, without elaborating.
COMMODITIES (BBG): OPEC+ to Review Oil Supply Curbs While Trump Tariffs Roil Market
Key OPEC+ members are due to gather online Monday for a review meeting at which they’re expected to leave current supply plans unchanged. The group led by Saudi Arabia and Russia - which has been withholding output for more than two years in a bid to shore up prices - intends to maintain those curbs for the rest of this quarter and then gradually restore production in monthly stages starting in April.
CORPORATE (BBG): Warburg, Berkshire Partners Near $3 Billion Deal for Triumph
Warburg Pincus and Berkshire Partners are in advanced talks to acquire aircraft parts and services supplier Triumph Group Inc. for about $3 billion, including debt, according to people familiar with the matter. The private equity firms are discussing paying $26 per share for the Radnor, Pennsylvania-based company, said the people, who asked to not be identified because the details are private. A deal could be announced as soon as Monday, the people said. No final decision has been made and discussions could fall through, the people added.
DATA
EUROZONE DATA (MNI): Eurozone Headline Inflation Higher on Energy Costs
- EUROZONE JAN FLASH HICP +2.5% Y/Y
- EUROZONE JAN FLASH CORE HICP +2.7% Y/Y
Eurozone headline inflation rose in January, pushed higher by a jump in energy costs, Eurostat data showed on Monday. Prices rose 2.5% in the year to January, 0.1 percentage point faster than in December, but core inflation was unchanged at 2.7%. However, month-on-month readings were sharply lower, suggesting sequential falls in coming months. Headline prices fell 0.3% m/m, while core prices were down 1.0% m/m. Services inflation, closely watched by the ECB, was lower at 3.9% y/y, down 0.2% m/m, while energy prices rose 1.8% y/y, up from 0.1% in December. On the month, energy costs jumped 2.9%.
EUROZONE DATA (MNI): Upward Revision to Jan Manufacturing PMI, Employment Signals Weak
- EUROZONE FINAL JAN MANUF PMI 46.6 (FLASH: 46.1); DEC 45.1
- GERMANY FINAL JAN MANUF PMI 45.0 (FLASH: 44.1); DEC 42.5
- FRANCE FINAL JAN MANUF PMI 45.0 (FLASH: 45.3); DEC 41.9
The Eurozone manufacturing PMI saw a five tenth upward revision to 46.6 (vs 46.1 flash, 45.1 prior), driven by a notable upward revision in Germany to 45.0 (vs 44.1 flash). Both new orders and production saw smaller declines than in December, helping the EZ aggregate tick higher. Spain and Greece continued to outperform Eurozone peers.
UK FINAL JAN MANUF PMI 48.3 (FLASH: 48.2); DEC 47.0 (MNI)
SPAIN DATA (MNI): Jan Manuf PMI Notably Weaker Than Consensus, Price Rises Noted
- SPAIN JAN MANUF PMI 50.9 (FCST: 53.5); DEC 53.3
The Spanish manufacturing PMI was notably weaker than consensus at 50.9 (vs 53.5 cons, 53.3 prior). While still in expansionary territory for the 12th consecutive month, this was the lowest reading since August. Uncertainty weighed on demand, especially in export markets, while there was an uptick in input cost and output charge inflation. Note that Eurozone flash PMI did note that the pace of growth in the region ex-France and Germany did slow from December.
ITALY DATA (MNI): 10th Consecutive Contractionary Manufacturing PMI
- ITALY JAN MANUF PMI 46.3 (FCST: 46.9); DEC 46.2
The Italian manufacturing PMI remained in contractionary territory for the 10th consecutive month, a little softer than expected at 46.3 (vs 46.9 cons, 46.2 prior). In contrast to Spain, rises in input costs were not passed into output charges. Key note from the release: "A further drop in order book volumes, linked by panellists to challenging market conditions. Both total and export sales declined markedly and at quicker rates than seen at the end of 2024".
ITALY JAN FLASH HICP -0.7% M/M, +1.7% Y/Y (MNI)
SWEDEN DATA (MNI): Manufacturing PMI Continues to Diverge From KI Barometer
The Swedish January manufacturing PMI ticked up to 52.9 (vs 52.4 prior), its sixth consecutive month in expansionary territory. The PMI has diverged from the manufacturing component of the KI Economic Tendency Indicator in recent months, but appears to have more closely tracked the uptick in industrial production momentum.
NETHERLANDS DATA (MNI): Dutch HICP Sees Services-Driven Drop in January
Dutch flash HICP inflation fell to 2.93% in January, down from 3.95% in December and also remaining notably below the 3.2% expected. This equates to a 0.83% M/M sequential decrease (+0.35% prior). The headline drop was services driven, and core HICP came in at its lowest since May 2024. Specifically, on services, the Y/Y print decelerated to 4.14%, notably below December's 5.86% and the lowest since June 2022. On a sequential comparison, services saw a 0.47% decrease, notably below January M/M prints of the last three years (0.17% '22, 0.60% '23 and 1.16% '24) and similar to the Jan'21 release (which was -0.59%).
TURKEY DATA (MNI): Annual Inflation Slows Less Than Expected in January
- TURKEY JAN CPI +5.03% M/M
Consumer price growth in Turkey slowed less-than-expected in January, with headline CPI seen rising +42.1% Y/Y compared to +44.4% in December (Est: +41.1%). Given the central bank’s preference for positive real rates, the data should be conducive to another rate cut when the MPC meet next in March. On a month-on-month basis, consumer prices rose +5.03% (Prior: +4.30% M/M), the highest for the series in over a year, though a sharp increase here had been anticipated given the recent increase in Turkey's minimum wage and the administered price adjustments at the start of the year.
AUSTRALIA DATA (MNI): Private House Approvals Stay Weak
- AUSTRALIA DEC BUILDING APPROVALS +0.7% M/M, +12.2% Y/Y
December building approvals printed below expectations due to weakness in the private houses component. The number of approvals rose 0.7% m/m with annual growth rising 12.2% up from 3.6%. The solid result was due to the volatile multi-unit component which increased 15.2% m/m to be up 42.7% y/y, whereas houses fell 3% m/m, the third consecutive decline, to be down 1.8% y/y. With the working age population rising 127k over Q4 and housing shortages persisting, building approvals need to rise to improve affordability and lower rental inflation.
AUSTRALIA DATA (MNI): Retail Spending Recovering Helped by Real Income Growth
- AUSTRALIA DEC RETAIL SALES -0.1% M/M
Retail sales were stronger than expected at the end of 2024. Q4 volumes rose 1.0% q/q to be +1.1% y/y after 0.5% & 0.2%. Monthly sales values have been impacted by a change in the timing of seasonal spending. Thus December fell 0.1% m/m after rising 0.7% in November, but it is now up 4.6% y/y after 3.1%, the highest growth rate in almost two years. Expectations for a February rate cut have grown but the retail data are signalling a recovery in spending supported by tax cuts and lower inflation.
RATINGS: A Couple of Affirmations on Friday
Sovereign rating reviews of note from after hours on Friday include:
- Fitch affirmed Turkey at BB-; Stable Outlook
- S&P affirmed Germany at AAA; Outlook Stable
FOREX: CAD Sinks to Multi-Decade Lows on Tariff Hammer
- Intraday vol and headline risk picked up over the weekend, as Trump set in place to invoke an emergency in order to install 25% tariffs on Canadian and Mexican imports - effective from 0001ET on Tuesday. This leaves calls with the Canadian and Mexican leaders today (a call with Trudeau already set for Monday "morning") as a final opportunity at which to delay or lessen the impact of trade levies.
- USD/CAD gapped notably higher at the open, tipping the rate to touch a high of 1.4793 and the highest level since 2003. The sharper moves for USD/CAD bring >$800mln of option expiries at C$1.4895 on Wednesday into play but, more notably, it's the ~$3bln set to roll off between C$1.4740-1.4800 that should draw attention. A sizeable proportion of that expiry slate is made up of calls, and could keep prices supported across the week and through the dual US/Canadian jobs reports set for Friday.
- Give the deteriorating trade backdrop and 10% tariff threat also levied against China, growth-proxies and risk sensitive currencies are faring the worst off, as AUD/USD slippage puts the pair at a new cycle low. The $0.6088 print marks a new post-COVID low and isolates $0.6099 as key at the close - that level marks the 76.4% retracement of the rally off 2020 lows.
- Headline risk remains high, with much market focus on calls between the White House and Canada & Mexico. Data releases include the ISM Manufacturing print for January - seen keeping pace with the December reading to broadly mimic the data patterns seen in the MNI Chicago Business Barometer print from Friday. Fed's Musalem and Bostic are the central bank speakers of note.
EGBS: Higher-Than-Expected EZ Flash HICP Contains Topside in Bunds
The firmer-than-expected Eurozone January flash inflation data helps contain upside in Bund futures (now +57 at 133.09), with the intraday high of 133.26 still intact. Clearance of this level would expose the Jan 3 high at 133.48, while initial support is the 20-day EMA at 132.02.
- Fallout from US President Trump’s weekend tariff announcements on Canada, Mexico and China, alongside further threats against the EU, have dominated price action this morning.
- Renewed tariff-related growth concerns have driven a dovish repricing in EUR rates, pulling short-end yields lower. 2-year Schatz yields are down 7bps at typing, registering fresh year-to-date lows of 2.03%
- 10-year EGB spreads to Bunds have widened, with BTPs underperforming. European equity futures are off overnight lows, but remain almost 2% lower today.
- EZ flash Jan HICP was a touch higher than expected at 2.5% Y/Y for headline (vs 2.4% cons and prior) and 2.7% Y/Y for core (vs 2.6% cons, 2.7% prior). Meanwhile, the EZ Jan manufacturing PMI saw a German-led upward revision.
- ECB’s Simkus and Villeroy endorsed further ECB cuts, while Kazimir’s comments were slightly more cautious.
- Focus turns to the ECB’s seasonally adjusted inflation data, alongside the US manufacturing sentiment readings later this afternoon. French PM Bayrou will attempt to force his 2025 budget through the National Assembly using special constitutional powers later, likely triggering a no-confidence vote on Wednesday.
GILTS: Rally Extends Further
A second-round bid in gilts, seemingly delayed vs. wider risk-off price action, given the later open for UK gilts vs. peers, takes gilt futures to session highs of 93.25.
- No fresh headline flow, market continues to balance beta to Tsys vs. broader macro picture/UK sensitivity to tariffs.
- Dec 20 high (93.09) in futures is broken, bulls now eye Fibonacci resistance at 93.64 as the bullish corrective cycle gains more traction.
- Yields now 5-8bp lower, curve bull steepens.
- 2s below 4.15% for the first time since October.
- 10s print below 4.50% for the first time since December, looking to close the opening gap higher from December 17 (4.442% needed to close that gap).
- 2s10s nearly 2bp steeper at 33.5bp, next upside target located at the Oct ‘22 closing high 40.4bp.
- 5s30s within 0.5bp of the July ’21 closing high (~91bp).
- BoE-dated OIS extends the recent run of dovish repricing, showing ~81bp of cuts through ’25.
- ~23.5bp of cuts priced for this week’s meeting and ~46bp of easing priced through May.
- We still look for cuts in both February and May.
- Market pricing looks a lot fairer to us than it did during the hawkish repricing seen in early January (which hit an extreme of ~36bp of cuts priced through ’25).
- We have noted that we need to see much more data before providing a meaningful opinion on the path policy in H225 for some time.
- SONIA futures flat to +6.0. SFIZ5 hits the highest level seen since mid-December.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Feb-25 | 4.467 | -23.4 |
Mar-25 | 4.412 | -28.9 |
May-25 | 4.238 | -46.3 |
Jun-25 | 4.157 | -54.4 |
Aug-25 | 4.032 | -66.9 |
Sep-25 | 3.991 | -71.0 |
Nov-25 | 3.916 | -78.5 |
Dec-25 | 3.892 | -80.9 |
EQUITIES: Reversal Lower for Eurostoxx 50 Futures Signals End of Recent Bull Run
A sharp reversal lower in the Eurostoxx 50 futures contract signals the end of the recent bull run - for now - and the start of a corrective cycle. Price has gapped lower and traded through the 20-day EMA, at 5152.76. A continuation lower would pave the way for a move towards the 50-day EMA, at 5050.12, the 50-day EMA. On the upside, key resistance and the bull trigger has been defined at 5327.00, the Jan 31 high. The S&P E-Minis contract has started the week on a bearish note. The gap lower today and a 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 6057.75, the Jan 31 low and a gap high on the daily chart. Clearance of this level would reinstate a bullish theme.
- Japan's NIKKEI closed lower by 1052.4 pts or -2.66% at 38520.09 and the TOPIX ended 68.27 pts lower or -2.45% at 2720.39.
- Across Europe, Germany's DAX trades lower by 376.39 pts or -1.73% at 21357.03, FTSE 100 lower by 119.96 pts or -1.38% at 8553.91, CAC 40 down 132.13 pts or -1.66% at 7817.16 and Euro Stoxx 50 down 92.27 pts or -1.75% at 5193.99.
- Dow Jones mini down 601 pts or -1.34% at 44102, S&P 500 mini down 95.75 pts or -1.58% at 5972, NASDAQ mini down 386.25 pts or -1.79% at 21203.
Time: 09:50 GMT
COMMODITIES: WTI Futures Rally Back Above 20-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 $72.26. 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 resulted in a print above $2790.1, to record a fresh all-time high. The climb confirms a resumption of the primary uptrend and maintains the bullish price sequence of higher highs and higher lows. Attention is on $2817.6 next, a Fibonacci projection. The first key support to watch is $2687.5, the 50-day EMA. The 20-day EMA is at $2728.1.
- WTI Crude up $1.4 or +1.93% at $73.94
- Natural Gas up $0.23 or +7.49% at $3.27
- Gold spot down $0.81 or -0.03% at $2797.67
- Copper down $3.9 or -0.91% at $424.15
- Silver down $0.13 or -0.42% at $31.172
- Platinum down $19.05 or -1.94% at $963.39
Time: 09:50 GMT
| Date | GMT/Local | Impact | Country | Event |
| 03/02/2025 | - | *** |  US | Domestic-Made Vehicle Sales |
| 03/02/2025 | 1445/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 03/02/2025 | 1500/1000 | *** | US | ISM Manufacturing Index |
| 03/02/2025 | 1500/1000 | * | US | Construction Spending |
| 03/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 03/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 03/02/2025 | 1730/1230 | US | Atlanta Fed's Raphael Bostic | |
| 03/02/2025 | 2330/1830 | US | St, Louis Fed's Alberto Musalem | |
| 04/02/2025 | 0745/0845 |  FR | France Budget Balance | |
| 04/02/2025 | 1000/1000 | ** |  GB | Gilt Outright Auction Result |
| 04/02/2025 | 1000/1000 | ** | GB | Gilt Outright Auction Result |
| 04/02/2025 | 1355/0855 | ** | US | Redbook Retail Sales Index |
| 04/02/2025 | 1500/1000 | ** | US | Factory New Orders |
| 04/02/2025 | 1500/1000 | *** | US | JOLTS jobs opening level |
| 04/02/2025 | 1500/1000 | *** | US | JOLTS quits Rate |
| 04/02/2025 | 1600/1100 | US | Atlanta Fed's Raphael Bostic | |
| 04/02/2025 | 1630/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 04/02/2025 | 1900/1400 | US | San Francisco Fed's Mary Daly | |
| 05/02/2025 | 2200/0900 | * |  AU | S&P Global Final Australia Services PMI |
| 05/02/2025 | 2200/0900 | ** | AU | S&P Global Final Australia Composite PMI |
| 05/02/2025 | 2330/0830 | ** |  JP | average wages (p) |