In focus today
Today, focus turns to the German Ifo. It will be interesting to see if the Ifo figures mirror the stronger-than-expected German PMI release on Friday.
The rest of the week will be busy, with focus on central bank meetings. On Wednesday, the Riksbank, the Bank of Canada, and the FOMC will announce their rate decisions, while the ECB will meet on Thursday. In addition to these meetings, there will be a flurry of interesting releases. In the euro area, Q4 flash GDP data, GDP country data, and January flash inflation from Spain will be released on Thursday, while January inflation for Germany and France is released on Friday. In the US, Tuesday will bring January durable goods orders, followed by the Q4 GDP release on Thursday and PCE inflation on Friday.
Economic and market news
What happened overnight
In China, the NBS PMIs recorded a decline in January, with the composite measure edging lower to 50.1 (prior: 52.2) amid weaker readings in both the manufacturing and services indices. Notably, the manufacturing component undershot expectations, contracting to 49.1 (cons: 50.1, prior: 50.1) – its weakest reading since August 2024 – though NBS stated that the reading “was affected by the approaching holiday”, which begins on Wednesday. NBS also released industrial profits, which declined 3.3% over the course of 2024.
In geopolitics, the US reported that the ceasefire between Israel and Lebanon has been extended until 18 February. The initial ceasefire was announced in late November, bringing an end to the 14-month-long conflict between Israel and Hezbollah.
What happened since Friday
Friday was all about PMIs, as we received January PMI data for the euro area, the UK and the US. In the euro area, the composite PMI was stronger than expected, increasing to 50.2 (cons: 49.7, prior: 49.6). While the uptick was mainly driven by the manufacturing PMI, which edged up to 46.1 (cons: 45.3, prior: 45.1), the overall level of the manufacturing component is low, indicating continued production declines. The service counterpart was little changed at 51.4 (cons: 51.5, prior: 51.6), but stayed in expansionary territory, supporting our expectation of a 0.2% q/q rise in Q1 GDP. Overall, the economy remains supported by a resilient labour market, also visible in the employment PMIs for January, which show that the service sector continues to record rising employment.
Like in the euro area, UK PMIs were also stronger than expected, indicating improved activity. The composite measure edged up to 50.9 (cons: 50.1, prior: 50.4), with services at 51.2 (cons: 50.8, prior: 51.1) and manufacturing at 48.2 (cons: 47.0, prior: 47.0). Growth is largely driven by the service sector with price sector output expanding, though only modestly. While price pressures – input and output prices in both service and manufacturing – remain significantly in expansionary territory, posing a concern for the BoE, we believe that the overall take-away from the report is that the BoE should still feel comfortable delivering a 25bp cut at their next meeting on 6 February.
In contrast to the euro area and the UK, the US PMIs were somewhat mixed. The composite PMI declined to 52.4 as the services PMI unexpectedly fell to 52.8 (cons: 56.5, prior: 56.8), whereas the manufacturing index ticked up to 50.1 (cons: 49.7, prior: 49.4). Turning to sub-components, both services business activity and new orders ticked lower, while price and employment indices moved higher, indicating that the details are not as soft as the headline figure suggests. Conversely, manufacturing figures are looking more solid, with firms’ order-inventory balances recovering quite nicely, and new orders indices recovering across both domestic and export demand. All in all, the signals across services and manufacturing were a bit more ambiguous.
In the US, President Trump threatened to impose emergency tariffs of 25-50% on Colombia after the South American nation refused to accept military flights carrying deportees. However, the tariff threats were put on hold on Sunday evening after an agreement was reached. While Colombia accounts for only around 0.5% of US imports, the face-off could be a warning sign for other countries going forward.
Equities: Global equities declined on Friday after eight consecutive days of gains. Interestingly, only the tech and energy sectors were lower, while the rest were higher. The day began positively before optimism waned as it progressed. Often, such movements can be attributed to specific events, but it is difficult to argue that this was the case on a Friday, especially when key European figures appeared satisfactory.US key figures and earnings were mixed, but the diminishing risk appetite began well before these events. In the US on Friday, the Dow was down 0.3%, S&P 500 down 0.3%, Nasdaq down 0.5%, and Russell 2000 down 0.3%. This morning, most equity markets in Asia are lower. However, the focus is on the US, with Nasdaq futures down more than 2% at the time of writing.
The reason is the focus on DeepSeek AI and the potential challenge to US leadership in AI, chip, and tech sectors. While it is early days, this development should not be underestimated given the exuberance and high valuation of AI-related stocks in the US. Any disruption to this narrative will have significant effects on markets. Please note that the coming week marks the peak of the earnings season, including results from five of the MAG 7 companies.
FI: Euro rates ended 3bp higher in the 10y point on Friday, after a roller coaster ride. Better than anticipated PMIs (particularly German PMI) was noted by markets, where both the services and manufacturing contributed to the surprise. The surprise took out 6bp of the ECB cut pricing for this year, and it now price just 88bp. We still like our call for the ECB to bring the policy rate into easing territory, below 2%. During the trading session, 10y Bunds were up 6bp at one point, but retraced following weaker than anticipated US PMIs.
FX: EUR/USD breached the 1.05 mark during Friday’s session following a strong set of euro area PMIs. However, overnight the USD has returned bid following Trump reigniting global tariff-concerns. GBP regained some lost ground towards the end of last week after a weak start to the year where fiscal worries have been at the front and centre for the currency. In the Scandies, Trump’s first week in office has proven a roller-coaster ride for NOK, where Trump bearish comments on oil prices have weighed on NOK and the lack of concrete initiatives on global tariffs, the weaker USD and a slightly more friendly relationship to China has contributed to strengthening NOK.
 amid weaker readings in both the manufacturing and services indices. Notably, the manufacturing component undershot expectations, contracting to 49.1 (cons: 50.1, prior: 50.1) - its weakest reading since August 2024 - though NBS stated that the reading "was affected by the approaching holiday", which begins on Wednesday. NBS also released industrial profits, which declined 3.3% over the course of 2024.){kind=link}