We are up for a slow week from the economic data standpoint as we will get inflation data from the US and Switzerland, Q4 GDP from the UK as well as retail sales data from the US.
USD
Monday open saw markets punish CAD and MXN on the threat of tariffs and then the rollercoaster began. First Mexican president Shainbaum stated that she had a good and long conversation with president Trump which resulted in delay of tariffs for 30 days. MXN has surged on the news. Mexico will deploy 10 000 national guard to the border to secure it and prevent drug trafficking into the US. Later on that same day, president Trump had a lengthy conversation with prime minister Trudeau of Canada and as a result tariffs on Canada were delayed for 30 days. Canada will also deploy 10 000 troops to secure the border. Both CAD and MXN made an 180 turn and finished the day much higher than they started. Only additional 10% tariffs on goods from China were left on. China retaliated with 15% tariffs on coal and LNG as well as limiting exports of some rare earth materials. There is also a threat of 10% tariffs on the Eurozone. Treasury secretary Bessent stated that he favors strong USD and that his focus will be on a 10y. The intention is to bring the yield on a 10y down and thus make it easier for economy to borrow funds without lowering Fed rate. There was no change in the QRA regarding debt issuance for 2025.
ISM January manufacturing PMI returned to expansion with a 50.9 print, up from 49.2 seen in December. Manufacturing returns to expansion for the first time since March of 2024. Details of report show employment and production also returning to expansion with 50.3 and 52.5 prints respectively as well as new orders posting a strong 55.1 print. On the other hand, prices paid index jumped to 54.9 from 52.2 in December while an increase to 53.8 was expected indicating that inflation pressures are gaining strength.
ISM services for the month of January declined to 52.8 from 54.1 in December while markets were expecting an increase to 54.3. Positives can be seen in increase in employment, moving further into expansion and in decrease in prices paid component, which will be warmly accepted by the Fed as it indicates that inflation pressures are subsiding in the services sector. On the other hand, causes for concern can be seen in the drop in new orders and overall business activity.
Headline NFP number in January missed expectations and came in at 143k s 170k as expected. Other information from the employment report were much more positive. The unemployment rate has ticked down to 4% while participation rate ticked up to 62.6%. Average wages rose 0.5% m/m and 4.1% y/y up from 0.3% m/m and 3.9% y/y seen in December while number of hours per week declined to 34.1. Additionally, two-month revision saw another 100k jobs added. Private sector added 111k jobs while government added 32k jobs.
The yield on a 10y Treasury started the week at 4.54%, rose to 4.58% and finished the week at around 4.49%. The yield on 2y Treasury started the week at 4.22% and reached the high of 4.29%. Spread between 2y and 10y Treasuries started the week at 28bp and finished the week at 20bp as curve started to bull flatten. FedWatchTool sees the probability of a 25bp rate cut at March meeting at around 8%, while probability of a no cut is around 92%. June is now the first meeting that sees above 50% probability of a rate cut.
This week we will have chairman Powell testifying in front of the Senate, January inflation data expected to stay unchanged and retail sales data.
Important news for USD:
Tuesday:
Fed Chair Testimony
Wednesday:
CPI
Friday:
Retail Sales
EUR
Final January manufacturing PMI for Eurozone was revised up to 46.6 from 46.1 as preliminary reported primarily on the back of positive German revision (45 vs 44.1 preliminary). The accompanying report warns about jumping to conclusions but states that positives start to appear. Additionally, the report states that rising input costs present a headwind for the sector but despite that optimism among companies has increased noticeably. Final services reading was revised down to 51.3 from 51.4 due to a negative revision in French reading. The report mentions sluggish but slowly accelerating growth in new orders and employment. Costs in services sector are rising at a fast pace which will worry ECB as they are paying close attention to services inflation. Composite reading was unchanged at 50.2
Preliminary January CPI report saw headline number tick up to 2.5% y/y from 2.4% y/y in December due to increase in energy prices. Core reading remained at 2.7% y/y for the fourth consecutive month, although markets were expecting a tick down to 2.6% y/y. Inflation was down 0.3% m/m which will be welcomed by the ECB.
GBP
Final manufacturing PMI for the month of January ticked up to 48.3 from 48.2 as preliminary reported. Details are concerning as output, new orders and employment all showed further declines while input prices reached new highs not seen since start of 2023. Unlike in Eurozone and in Japan business confidence is near the lows seen in December. Final services was revised down to 50.8 from 51.2 as preliminary reported and is down from 51.1 in December. The report shows a worrying picture of output increasing modestly while input costs accelerated. New orders turned down while employment declined to the greatest extent for four years. Composite was also revised down to 50.6 from 50.9 as preliminary reported.
BoE has delivered 25bp rate cut and brought rate to 4.50% as was widely expected. The important part was the vote which was unanimous (9-0 vs 8-1) as expected with even arch-hawk Catherine Mann voting for a rate cut. Not only did she change her tune but she along with Swati Dhingra, the most dovish member, voted for a 50bp rate cut. The statement emphasizes the disinflationary process in the past years as well as that domestic pressures are seen moderating but inflation remains elevated. GDP growth has been weaker than previously projected but it is expected to pick up in H2 of 2025. On future rate moves statement shows that “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate.” Members will continue to monitor inflation expectations when making decisions on monetary policy. CPI projections have been revised higher and are now at 3% in one year’s time, 2.3% in two years’ time and 1.9% at three years’ time. With decision being unanimous we now expect another rate cut to come in May.
This week we will have preliminary Q4 GDP reading expected to print flat q/q.
Important news for GBP:
Thursday:
GDP
AUD
Caixin manufacturing PMI for the month of January came in at 50.1, down from 50.5 in December. Barely keeping in expansion as new export orders continue to decline. Most concerning factor is a big drop in employment index which reached lowest levels since 2020. Caixin PMI survey focuses on export-oriented and technology-driven firms. Caixin services declined to 51 from 52.2 the previous month. The report shows continuation of growth in business activity and new orders with rebound in external demand. Business expectations jumped indicating improvement in optimism, but sentiment is still below historical average.
NZD
Q4 employment report saw employment change decline by 0.1% q/q while the unemployment rate rose to 5.1% which is a new four year-high (it was 5.3% in Q3 of 2020). Participation rate dropped to 71% from 71.2% in Q3. Average hourly earnings rose by 4.2% y/y. Big increase in the unemployment rate is seen as a consequence of a very aggressive rate hiking cycle by the RBNZ. We expect them to deliver a 50bp rate cut at their February meeting.
CAD
January employment report saw economy add 76k jobs vs 25k as expected. Additionally, previous month’s reading was revised up to 179.1k from 90.9k with 171.8k jobs added being full-time! January saw unemployment rate tick down to 6.6% while participation rate ticked up to 65.5%. Wages rose at the rate of 3.5% y/y after 3.8% y/y increase in December. Job composition saw 35.2k of the jobs added being full-time while 40.9k were part-time jobs. The economy has been adding jobs for the sixth straight months. Canada posted first trade surplus in December since the start of the year as net exports grew by CAD0.71bn as there was frontloading of export because of the threat of tariffs.
JPY
Summary of opinions from January meeting shows that underlying inflation is expected to continue rising gradually and reach the 2% target. Risks to inflation are seen as balanced but they could be tilted to the upside if the trade frictions persist. Real rates remain deeply negative even after the hike with high uncertainties warranting cautious communication on future path of rate hikes.
Final manufacturing PMI for the month of January was revised down to 48.7 from 48.8 as preliminary reported and down from 49.6 in December. New orders and production continued to decline while business optimism remained high. Final services were revised up to 53 from 52.7 and thus surged nicely from 50.9 in December on the back of rising external demand, employment and input costs. Composite remained at 51.1.
Labor cash earnings rose by 4.8% y/y in December vs 3.6% y/y as expected while November reading was revised up to 3.9% y/y. Real wages rose 0.6% y/y while they were revised up for November to 0.5% y/y thus making it two consecutive monthly increases. Household consumption rose 2.7% y/y indicating that higher wages are transferring into spending. Rising real wages, with a real probability that Shunto negotiations bring new wage increases, as well as wage transfers to consumption in the months ahead which in turn should lead BoJ to deliver more rate hikes.
CHF
SNB total sight deposits for the week ending January 24 came in at CHF441.9bn vs CHF441.3bn the previous week. Just a small tick up as SNB lets market determine Swissy’s value.
This week we will have inflation data.
Important news for CHF:
Thursday:
CPI
