Fed officials stress patience on rate cuts amid tariff uncertainty

    A trio of Fed officials cautioned that new broad-based tariffs could add upward pressure to consumer and producer prices, suggesting a slower pace of rate cuts than previously anticipated.

    Boston Fed President Susan Collins highlighted yesterday that tariffs on both final and intermediate goods risk inflating costs throughout supply chains, requiring “patient” policy decisions.

    “It’s really appropriate for policy to be patient, careful, and there’s no urgency for making additional adjustments, especially given all of the uncertainty, even though, of course, we’re still somewhat restrictive,” Collins said.

    Chicago Fed President Austan Goolsbee also stressed “a ton of uncertainty,” warning that a premature return to lower rates could reignite inflation.

    “We’ve got to be a little more careful and more prudent of how fast rates could come down because there are risks that inflation is about to start kicking back up again,” Goolsbee said.

    Meanwhile, Atlanta Fed President Raphael Bostic noted that any tariff-related surge in prices or inflation expectations might warrant close monitoring before further easing steps are taken.

    DOW rebounds as US delays Mexico tariffs for border deal talks

      Market sentiment rebounded sharply after the US announced a one-month pause on planned tariffs against Mexico, following an agreement on border security measures. DOW recovered to around 44,400 after initially dropping to 43,920 in early trading, reflecting renewed optimism that negotiations could lead to a resolution despite the aggressive tariff rhetoric from the US administration.

      The shift in tone was confirmed by President Donald Trump’s Truth Social post, where he stated that he had a “very friendly conversation” with Mexico’s President Claudia Sheinbaum. As part of the agreement, Mexico will deploy 10,000 soldiers along its border with the US to curb fentanyl trafficking and illegal migration. Trump also announced that high-level negotiations, led by key officials including Secretary of State Marco Rubio, will take place over the next month to work toward a “deal.”

      The move suggests that while tariffs remain a significant geopolitical risk, there is room for diplomatic efforts to prevent further economic disruption. The pause in Mexican tariffs could set a precedent for similar discussions with Canada and China, though uncertainty remains high regarding the administration’s broader trade strategy. For now, markets appear to be viewing this as a sign that Trump’s threats may be a negotiating tactic rather than an immediate escalation.

       

      US ISM manufacturing rises to 50.9, ending 26-month contraction

        The US manufacturing sector returned to expansion in January, with ISM Manufacturing PMI rising to 50.9 from 49.2, breaking a 26-month streak of contraction, above expectation of 49.3.

        The improvement was broad-based, signaling stronger demand and increased production capacity. Notably, new orders climbed to 55.1 from 52.1, reflecting growing demand, while production rose to 52.5 from 49.9, indicating that manufacturers are ramping up output in response.

        The employment index also showed a meaningful recovery, rebounding to 50.3 from 45.4, suggesting that firms are hiring again after months of labor market weakness. Meanwhile, input costs rose, with the prices index increasing to 54.9 from 52.5, signaling that inflationary pressures may be creeping back into the supply chain.

        Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, highlighted that the January PMI reading aligns with a projected 2.4% annualized GDP growth rate.

        Full US ISM manufacturing release here.

        Eurozone CPI rises to 2.5% in Jan, core unchanged at 2.7%

          Eurozone CPI rose from 2.4% yoy to 2.5% yoy in January, above expectation of 2.4% yoy. CPI core (ex-energy, food, alcohol & tobacco) was unchanged at 2.7% yoy, above expectation of 2.6% yoy.

          Looking at the main components, services is expected to have the highest annual rate in January (3.9%, compared with 4.0% in December), followed by food, alcohol & tobacco (2.3%, compared with 2.6% in December), energy (1.8%, compared with 0.1% in December) and non-energy industrial goods (0.5%, stable compared with December).

          Full Eurozone CPI flash release here.

          UK PMI manufacturing finalized at 48.3, outlook remains weak

            UK manufacturing sector remained in contraction at the start of 2025, with January’s final PMI rising slightly to 48.3 from December’s 11-month low of 47.0. Despite the modest improvement, four of the five key components—output, new orders, employment, and stocks of purchases—declined. The only positive indicator was longer average vendor lead times, which typically reflect supply chain constraints rather than stronger demand.

            Rob Dobson, Director at S&P Global Market Intelligence noted that Weak domestic and international demand remains a key drag on the sector, with no clear signs of recovery in sight. Rising cost pressures are also adding to the strain, with input price inflation reaching a two-year high.

            The effects of last year’s Budget changes, particularly increases in the minimum wage and employer National Insurance contributions, are expected to feed further into rising costs. These factors could keep pressure on profit margins and limit any near-term rebound in manufacturing activity. Business confidence remains low, hovering near December’s two-year low, reflecting ongoing uncertainty in both economic conditions and policy direction.

            Full UK PMI manufacturing final release here.

            Eurozone PMI manufacturing finalized at 46.6, still too early to talk about greenshoots

              Eurozone PMI Manufacturing was finalized at 46.6, up from December’s 45.1, marking an eight-month high. While still in contraction, the data suggests a slowdown in the sector’s decline. Germany’s PMI rose to 45.0, while France rose to 45.0. Austria (45.7) and Italy (46.3) also saw multi-month highs. Greece (52.8) and Spain (50.9) remained in expansion.

              According to Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, despite the improvement, manufacturing remains under pressure. It is “too early” to signal a full recovery. Rising input costs, driven by nearly 7% increase in oil prices, pose risks for firms already facing weak demand. ECB’s easing path could also be complicated if inflationary pressures persist.

              The US is expected to impose tariffs on European exports. However, business confidence has improved, with future output expectations rising four points above the long-term average, partly driven by optimism surrounding upcoming elections in Germany and possibly France.

              While Germany and France remain the weakest performers, the pace of contraction has slowed across multiple sectors. De la Rubia noted that over 90% of Eurozone exports go to markets outside the US, limiting the immediate impact of potential tariffs.

              Full Eurozone PMI manufacturing final release here.

              BoJ opinions signal more rate hikes as inflation risks tilt higher

                BoJ’s Summary of Opinions from the January 23-24 meeting indicates a growing shift toward policy normalization, as multiple board members highlighted mounting inflationary pressures.

                Rising import costs driven by the weak yen have led more businesses to raise prices, prompting concerns that inflation could overshoot expectations.

                One member noted that with economic activity and prices remaining stable, “risks to prices have become more skewed to the upside,” emphasizing that rate hikes should be “timely and gradual.”

                Some policymakers warned that continued Yen depreciation and excessive risk-taking could lead to an overheating of financial activities. To counter this, one board member argued for additional rate hikes to stabilize the currency and prevent further distortions in market expectations regarding BoJ policy.

                At the January meeting, the BoJ raised its short-term policy rate from 0.25% to 0.50%, marking another step away from ultra-loose monetary policy. The central bank also revised its price forecasts higher, reinforcing its confidence that rising wages will sustain inflation near the 2% target.

                Full BoJ Summary of Opinions here.

                China’s Caixin PMI manufacturing slips to 50.1, growth momentum weakens

                  China’s Caixin Manufacturing PMI edged down to 50.1 in January from 50.5 in December.

                  According to Caixin Insight Group, manufacturers saw improved logistics and a slight pickup in supply and demand. However, employment levels deteriorated notably, and new export orders remained weak, reflecting sluggish global demand.

                  External risks also remain a key concern, with rising geopolitical uncertainty adding pressure to China’s export environment. Disruptions in global trade policies could further dampen overseas demand, making it difficult for manufacturers to sustain current production levels.

                  Domestically, consumer spending remains sluggish, highlighting the need for policy measures aimed at boosting disposable income and restoring confidence.

                  Full China Caixin PMI manufacturing release here.

                  Japan’s PMI manufacturing finalized at 48.7, deepest contraction in 10 Months

                    Japan’s PMI Manufacturing was finalized at 48.7 in January, down from December’s 49.6. This marks the sharpest decline in output since March 2024, as firms faced a steeper drop in new orders. Weak demand conditions forced manufacturers to scale back production, reflecting ongoing headwinds for the sector.

                    According to S&P Global, businesses reacted to falling demand by cutting both inventories and raw material holdings, while also reducing input purchases at the fastest pace in nearly a year. Employment growth also slowed, highlighting a cautious approach to hiring amid economic uncertainty.

                    Despite the downturn, manufacturers maintained a positive outlook for future output, though confidence fell to its lowest level since December 2022. While firms expect a recovery in demand, concerns persist over when such an improvement will materialize. The slowdown in input price inflation to a nine-month low provides some relief, but overall, sentiment remains fragile.

                    Full Japan PMI manufacturing final release.

                    Australia’s retail sales dip -0.1% mom in Dec, less than expected

                      Australia’s retail sales turnover edged down by -0.1% mom in December, a smaller decline than the expected -0.7% mom. While the contraction marks a pullback from the strong growth seen in previous months—0.7% mom in November and 0.5% in October mom—it suggests that consumer spending remains relatively resilient.

                      According to Robert Ewing, head of business statistics at the Australian Bureau of Statistics, retail activity was supported by extended promotional events, helping to smooth spending patterns over the quarter. He noted that Cyber Monday, which fell in early December, boosted demand for discretionary items, particularly furniture, homewares, electronics, and electrical goods.

                      Full Australia retail sales release here.

                      Trade War 2.0 kicks off, USD/CAD breaks key resistance with 1.50 in sight

                        The long-anticipated escalation in trade tensions has officially materialized as US President Donald Trump imposed sweeping tariffs over the weekend. A 25% tariff is now in effect on imports from Canada and Mexico, while China faces a 10% levy on its exports to the US. The move, widely expected, marks the formal start of what is being called Trade War 2.0.

                        In immediate response, Canada announced retaliatory tariffs of 25% on USD 155B worth of US goods, while China indicated that it would file a case against the US at the World Trade Organization.

                        Dollar gapped higher as the week started in response to the development. USD/CAD broke through 1.4689 key resistance (2016 high) to resume the long term up trend. Technically, the next medium term target for USD/CAD is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993.

                        Though given the scale of uncertainty surrounding the trade dispute, further upside cannot be ruled out. A lack of near-term resolution could see USD/CAD extend even higher toward 61.8% projection of 0.9406 to 1.4689 from 1.2005 at 1.5270 before topping.

                        US PCE inflation rises to 2.6% in Dec, core PCE unchanged at 2.8%

                          In December in the US, headline PCE price index rose 0.3% mom while core PCE price index rose 0.2% mom, both matched expectations.

                          In the 12-month period, PCE price index accelerated from 2.4% yoy to 2.6% yoy. core PCE price index (Excluding food and energy) was unchanged at 2.8% yoy. Both matched expectations.

                          Personal income rose 0.4% mom or USD 92.0B, matched expectations. Personal spending rose 0.7% mom or USD 133.6B, stronger than expected 0.5% mom.

                          Full US personal income and outlays release here.

                          Canada’s GDP contracts -0.2% mom in Nov, but Dec outlook improves

                            Canada’s economy shrank by -0.2% mom in November, marking the largest contraction since December 2023 and coming in weaker than expectations of -0.1% mom decline. The downturn was broad-based, with 13 of 20 sectors reporting declines, underscoring underlying weakness across multiple industries.

                            Goods-producing industries led the slowdown, contracting by -0.6% after a strong 0.9% expansion in October. Services sector, which had posted steady gains in previous months, also slipped by -0.1%, marking its first decline in six months.

                            Advance estimates suggest that real GDP expanded by 0.2% mom in December, pointing to a rebound. Growth was driven by gains in retail trade, manufacturing, and construction, though this was partially offset by weakness in transportation, real estate, and wholesale trade.

                            Full Canada GDP release here.

                            Tokyo inflation accelerates, keeping BoJ hikes alive

                              Japan’s inflationary pressures picked up in January, with Tokyo’s core CPI (excluding fresh food) rising to 2.5% yoy from 2.4%, marking its fastest pace in nearly a year. Core-core measure (excluding food and energy) also edged higher to 1.9% from 1.8%. Meanwhile, headline CPI surged to 3.4% from 3.0%, its highest level in nearly two years, largely driven by rising prices for vegetables and rice.

                              The data reinforces expectations that inflation in Japan could continue rising toward 3% in the coming months, as persistently weak yen drives up import costs. Some analysts see room for one or two more rate hikes by BoJ this year, particularly if inflation remains sticky and real wage growth improves. However, with Tokyo services inflation slowing to 0.6% yoy from 1.0% yoy, concerns remain about the sustainability of domestic price pressures.

                              On the production side, industrial output rose 0.3% mom in December, matching forecasts. The Ministry of Economy retained its cautious assessment, stating that production “fluctuates indecisively,” though manufacturers expect a 1.0% rise in January and a further 1.2% increase in February.

                              Retail sales, however, showed resilience, climbing 3.7% yoy, exceeding expectations of 2.9%. This suggests that consumer demand remains strong despite higher living costs.

                              BoJ’s Ueda reaffirms support for economy while keeping rate hikes on the table

                                BoJ Governor Kazuo Ueda reiterated the central bank’s is aiming for “gradual pickup” in prices, supported by a “solid increase in wages.” He emphasized that maintaining easy monetary conditions remains necessary to “support economic activity” and ensure that underlying inflation continues rising toward the 2% target.

                                However, he also made it clear that BoJ’s stance remains unchanged, noting that it will “continue raising interest rates” and adjust monetary support if the economy and prices “move in line with our forecasts.”

                                At the same parliamentary session, Prime Minister Shigeru reinforced the government’s priority of achieving sustainable inflation alongside wage growth. He highlighted that while stable price increases are important, “we must aim for wage growth higher than inflation while prices rise stably.” He also warned against the perception that falling prices are beneficial, arguing that such views prolonged Japan’s deflationary struggles in the past.

                                US GDP growth slows to 2.3% in Q4, inflation pressures tick higher

                                  The US economy expanded at a 2.3% annualized rate in Q4, missing expectations of 2.6% and slowing from Q3’s 3.1% growth.

                                  The deceleration in growth was primarily driven by weaker investment activity, which offset gains in consumer and government spending. Meanwhile, imports declined, providing a slight boost to the overall GDP figure.

                                  Inflation data within the report signaled a modest pickup in price pressures. GDP price index rose 2.2% in Q4, up from 1.9% in the previous quarter, though below forecasts of 2.5%.

                                  PCE price index accelerated to 2.3% from 1.5%, while the core PCE price index (excluding food and energy), a key measure of inflation tracked by Fed, rose to 2.5% from 2.2%.

                                  Full US GDP advance release here.

                                  US initial jobless claims falls to 207k vs exp 225k

                                    US initial jobless claims fell -16k to 207k in the week ending January 25, below expectation of 225k. Four-week moving average of initial claims fell -1k to 213k.

                                    Continuing claims fell -42k to 1858k in the week ending January 18. Four-week moving average of continuing claims rose 6k to 1872k.

                                    Full US jobless claims release here.

                                    ECB cuts 25bps, disinflation well on track

                                      ECB delivered a widely expected 25bps rate cut, bringing main refinancing rate to 2.75%,  marginal lending rate  to 2.90%, and deposit rate to 3.15%.

                                      In its statement, ECB noted that the “disinflation process is well on track,” with inflation evolving broadly in line with projections. Policymakers expect inflation to reach the 2% medium-term target this year, with underlying inflation measures indicating price stability on a “sustained basis.”

                                      ECB acknowledged that domestic inflation remains elevated due to “wages and prices in certain sectors still adjusting to the past inflation surge with a substantial delay.” Despite this, the central bank noted that wage growth is “moderating,” and corporate profit margins are absorbing part of the cost pressures, preventing a stronger inflation rebound.

                                      Full ECB statement here.

                                      Eurozone GDP stagnates in Q4, Germany and France weigh on growth

                                        Eurozone economy stalled in Q4, posting 0.0% qoq growth, falling short of modest expectations for a 0.1% expansion. Meanwhile, EU-wide GDP grew by 0.1% qoq, indicating marginal economic activity across the bloc.

                                        Among individual member states, Portugal led growth with a robust 1.5% increase, followed by Lithuania (+0.9%) and Spain (+0.8%).

                                        However, the overall performance was dragged down by contractions in key economies. Ireland recorded the steepest decline at -1.3%, while Germany and France also posted negative growth of -0.2% and -0.1%, respectively.

                                        On a year-over-year basis, GDP growth was positive for nine Eurozone countries, while three recorded annual declines.

                                        Full Eurozone GDP release here.

                                        Swiss KOF rises to 101.6, led by manufacturing and services

                                          Switzerland’s KOF Economic Barometer climbed to 101.6 in January, up from 99.6 and surpassing market expectations of 100.5. This data suggests modest pickup in economic momentum, particularly in production-side sectors.

                                          According to KOF, “the majority of the production-side indicator bundles included in the KOF Economic Barometer show positive developments.”

                                          The strongest contributions came from manufacturing, financial and insurance services, hospitality, and other service industries, signaling resilience in key sectors of the Swiss economy.

                                          However, the outlook remains uneven. While production indicators strengthened, demand-side indicators showed signs of weakness. KOF noted that both “the indicator bundles for foreign demand as well as for private consumption indicate a downward tendency,” highlighting subdued consumer activity and external trade concerns.

                                          Full Swiss KOF release here.