Highlights this week include Fed Chair Powell’s semi-annual testimony to Congress (Tues-Wed), the US CPI (Wed) and PPI (Thu), and earnings from the likes of Coca-Cola, and McDonalds. A data free Monday will have markets focused on China’s counter-tariffs on US goods, effective today, and further tariff announcements from the US. On Tuesday we will hear from the Fed’s Hammack, on economic outlook, and Williams. The BoE’s Bailey and Mann speak on financial markets and economic prospects, respectively. US CPI will grab market focus on Wednesday. The Fed’s Bostic, ECB’s Elderson and Nagel, and BoE’s Greene all speak on Wednesday. Germany CPI, UK GDP and US PPI are due on Thursday. Eurozone GDP, and US retail sales, industrial production and business inventories will garner interest on Friday.
Uncertainty remained a dominant theme last week amid trade war rhetoric. The week began with a pause on US tariffs on Canada and Mexico, for 30 days, following tentative agreements. Meanwhile, the 10% US tariff on Chinese imports resulted in counter-tariffs. The US Treasury 10-year yield fell 4bps to 4.50%, while the S&P Index fell 0.24%. Meanwhile, the US dollar weakened as markets viewed Trump’s tariff threats as negotiation tactics; the DXY Index fell 0.30%. Meanwhile, Brent crude fell 2.74%, as OPEC+ reaffirmed its plans to gradually increase oil production from April.
Fed chatter was broadly one of caution as officials expressed concerns about trade policy uncertainty. Collins noted tariffs could raise costs for both final and intermediate goods. Goolsbee warned about careful interest rate management, while Bostic highlighted that businesses are preparing for tariff-related cost increases.
US data releases included the US ISM manufacturing, which surprised to the upside January, breaking back into expansion, at 50.9. The ISM services print disappointed, and interestingly the prices paid component slipped dramatically, although still robust at 60.4. Labour market data was broadly softer-than-expected, ahead of the key employment report on Friday, which was mixed. Non farm payrolls increased by 143 jobs (exp. 175k, prev. 256k), average hourly earnings rose 4.1%yoy and unemployment fell to 4%. The Uni. of Michigan consumer sentiment fell to a seven-month low amid inflation concerns. The Uni. of Michigan inflation expectations surprised with the 1-year revised 100bps higher to 4.3%, while the 5-10 year projections were marginally higher at 3.3%.
Elsewhere, eurozone CPI unexpectedly increased in January with the headline increasing to 2.5%yoy and core up 2.7%yoy. However, this rise is not expected to alter the ECB’s plans to lower interest rates, though concerns have emerged about potential US tariffs on EU goods and their impact on both growth and inflation.
The Bank of England cut interest rates by 25bps to 4.50% while halving its UK growth forecast for 2025 from 1.5% to 0.75%. Despite warning that inflation could reach 3.7% by autumn, Governor Andrew Bailey indicated further rate cuts may come this year, citing concerns over weak economic growth and declining business confidence, though he emphasised these would be implemented gradually and carefully.
Over the weekend we had China’s CPI and PPI for January. CPI to 0.5%yoy marking the fastest growth in five months, driven by lunar new year festivities and seasonal spending on food and services. While this surpassed economists’ predictions and showed an uptick from December’s 0.1%, the broader outlook remains subdued – February could see a contraction exceeding 0.5%, with inflation likely to stay flat in Q1 before a possible modest rise to 1% in Q2. Meanwhile, PPI fell 2.3%yoy, marking its 28th consecutive monthly decline and slightly exceeding economists’ forecasts of a 2.2% drop, indicating that deflationary pressures continue to grip China’s manufacturing sector despite the temporary consumer price boost.
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