MNI EXCLUSIVE: ISM Services Chief On Outlook Amid Tariffs

European yields fell sharply Monday in a bull steepening move inspired by US tariff policy uncertainty.

• Safe-haven instruments were bid early after the weekend's news that US President Trump announced he would follow through with tariffs on Mexico, Canada and China starting Feb 4, with equities falling and the dollar soaring.
• Yields were hitting fresh lows when headlines emerged that US tariffs on Mexico would be postponed for one month. Uncertainty over US tariffs lingers after the cash close, with levies set to be imposed on Canada and China overnight.
• Earlier firmer-than-expected Eurozone January flash inflation data helps contain the downside in Bund yields.
• Bunds outperformed Gilts (in part due to perception that the UK would be less tariff-targeted by the US than the EU), with bull steepening in both curves though a touch of belly outperformance in the UK.
• While periphery EGB spreads widened, French OATs impressed in the semi-core space: the French socialist party decided not to support the censure motion against PM Bayrou.
• Apart from tariff developments, Tuesday's European calendar includes Spanish labor market and French budget data, with an appearance by ECB's Villeroy.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 8.5bps at 2.034%, 5-Yr is down 8bps at 2.155%, 10-Yr is down 7.5bps at 2.385%, and 30-Yr is down 7.4bps at 2.639%.
• UK: The 2-Yr yield is down 5.4bps at 4.165%, 5-Yr is down 6.3bps at 4.161%, 10-Yr is down 5.1bps at 4.487%, and 30-Yr is down 3.6bps at 5.09%.
• Italian BTP spread up 2.4bps at 111.7bps / French OAT down 1.2bps at 72.2bps  
   

• EUR/USD: Feb05 $1.0300-05(E1.2bln) $1.0500(E1.4bln); Feb06 $1.0250(E1.5bln), $1.0315-25(E2.2bln), $1.0400(E1.0bln)
• USD/JPY: Feb05 Y153.15-25($2.0bln); Feb06 Y153.90($1.4bln)
• GBP/USD: Feb06 $1.2455(Gbp1.2bln)
• EUR/GBP: Feb06 Gbp0.8465(E1.1bln)

Atlanta Fed GDPNow sees a sharp upgrade to 3.9% Q/Q ann. growth in Q1 2025, vs 2.9% in Friday's initial estimate.

• That comes after today's construction spending figures (which MNI flagged suggested stronger structure investment on both the residential and non-residential sides), and the stronger-than-expected ISM manufacturing survey.
• Private consumption is now seen growing 4.1% (up from 3.0% prior estimate), with equipment investment up 4.1% (3.9% prior), nonresidential structures -0.4% (-3.8% prior), and residential investment 2.9% (2.3% prior). See table below.