MNI ASIA OPEN: Tariff Focus Continues, Reciprocity On Many

EXECUTIVE SUMMARY

• MNI: Fed Gov Kugler Flags Slow And Uneven Inflation Progress
• MNI FED: Semi-Annual MonPol Report Sees "Somewhat Restrictive" Financial Conditions
• MNI US: Trump: We Will Announce Reciprocal Tariffs On Many Countries Next Week
• MNI US DATA: Surprisingly Firm AHE Growth But Hours Slide A Notable Caveat
• MNI US DATA: Partisanship Means UMIch Inflation Expectations Should Be Discounted
• MNI US DATA: Strong Recent Trends For Payrolls After Annual Revisions

US

MNI: Fed Gov Kugler Flags Slow And Uneven Inflation Progress

Federal Reserve Governor Adriana Kugler said Friday inflation remains elevated and has been slow to return to 2% while the labor market remains healthy, and she'll be watching carefully the economic impacts of President Donald Trump's new policies. "We reduced our policy rate 100 basis points through December, but the recent progress on inflation has been slow and uneven, and inflation remains elevated. There is also considerable uncertainty about the economic effects of proposals of new policies," she said in remarks prepared for the Economic Club of Miami. 

MNI FED: Semi-Annual MonPol Report Sees "Somewhat Restrictive" Financial Conditions

The Federal Reserve's semi-annual monetary policy report (PDF link) has been released ahead of Chair Powell's congressional testimony next Tuesday and Wednesday. Unsurprisingly given the historical track record of these reports, there's nothing noteworthy for the policy rate or Fed balance sheet/QT outlooks, but still there are a few subheadings of note:

• On financial conditions: "Financial conditions continue to appear to be somewhat restrictive on balance"; "Consumer financing conditions remain somewhat restrictive"; "Business financing conditions remained somewhat restrictive, but credit remains generally available". At the January press conference, Powell characterized "overall financial conditions are probably still
  somewhat accommodative, but it's a mixed bag", but this is perhaps a glass half full vs half empty difference in the characterization.
• On inflation: "Inflation eased a little further last year", "Core goods prices have been declining slightly, close to pre-pandemic declines, while housing services price inflation moved lower last year but remains elevated and core non-housing services price inflation has flattened out at a somewhat elevated level"

NEWS

MNI US: Trump: We Will Announce Reciprocal Tariffs On Many Countries Next Week

Newswires reporting a flurry of tariff-related comments from US President Donald Trump ahead of his press conference with Japanese Prime Minister Shigeru Ishiba. The comments come in the wake of a market-moving Reuters story suggesting that Trump told Republican lawmakers that he could unveil “reciprocal” tariffs as soon as today. Per Reuters, Trump said: “...tariffs are an option to address deficit… will announce reciprocal tariffs next week on many countries.” Trump added: “Auto tariffs are on the table,” indicating tariffs could be directed at the European Union and Japan. Key Trump advisor Peter Navarro said this week, “Europe is sticking it to us with their vat tax,” specifically noting the bloc, “won't buy American cars”.

MNI US: Johnson Appears To Suggest Debt Limit Could Be Addressed In Reconciliation

Chad Pergram at Fox News reporting comments from House Speaker Mike Johnson (R-LA), updating on the status of the House GOP's legislative plan and the impending (March 14) government funding deadline. Johnson confirms reporting that he won't release any more details on a budget resolution to open reconciliation today. Says “nothing today”, adding that the House Budget Committee markup may come Tuesday but there are, “a couple of details to work out”.

MNI US TSYS: Reciprocal Tariff Headlines Buoy Tsys After Volatile Jobs Data

• Treasuries look to finish weaker Friday, near midday lows after a volatile data releases this morning: Treasuries gapped higher (TYH5 110-00 high, 4.38% yld) after lower than expected jobs gains for January, and small dip in unemployment rate -- but quickly reversed on higher up-revisions to prior jobs gains to 109-07.5 low at the time.
• Nonfarm payrolls were softer than expected in January alone at 143k (cons 175k) but the latest two-month revision of +100k more than offset this (almost evenly split across Dec and Nov). As such, the 143k followed two even stronger than previously thought months with 307k in Dec and 261k in Nov.
• The Mar'25 10Y contract ratcheted lower after 1Y forward inflation expectations in the UMichigan survey for February (to 4.3% from 3.3% in January), tapping 109-01 low in the first half. Brief risk-off support arrived after Pres Trump headlines suggested reciprocal tariff's in the near term (rather vague - Trump is expected to discuss details at a press conference next Tuesday.
• Mixed sentiment prompted the USD index to oscillate around unchanged levels in the following hours, however, as Trump headlines began to cross, the USD remained on the front foot for the majority of the late Friday session.
• Next week's focus is on Chairman Powell mon-pol testimony to Congress on Tuesday-Wednesday,CPI and PPI inflation measures Wednesday and Thursday respectively.

OVERNIGHT DATA

MNI US DATA: Strong Recent Trends For Payrolls After Annual Revisions

• Nonfarm payrolls were softer than expected in January alone at 143k (cons 175k) but the latest two-month revision of +100k more than offset this (almost evenly split across Dec and Nov).
• As such, the 143k followed two even stronger than previously thought months with 307k in Dec and 261k in Nov.
• Impressively, that December print came despite a less favorable seasonal factor, which we’ll touch more on later.  
• Looking beyond that two-month typical revision window, the new seasonally adjusted profile sees little change through Aug-Oct with weakness coming Jun and Jul.
• Latest trends: NFP 3-mth at 237k, 6-mth at 178k. Private payrolls 3-mth 209k, 6-mth 145k. 

MNI US DATA: Surprisingly Firm AHE Growth But Hours Slide A Notable Caveat

• AHE growth firmly exceeded expectations in January even if rounding did exaggerate it a touch, at 0.476% M/M (cons 0.3) after a slightly downward revised 0.25% (initial 0.28%).
• Primary dealer analysts had seen a mild skew towards a hawkish surprise but no analyst had looked for stronger than 0.4% M/M. It translated to easily stronger than expected Y/Y growth of of 4.06% (cons 3.8) with the upward revised 4.05% Y/Y in Dec (initial 3.9%) again exaggerated by rounding.
• The non-supervisory component meanwhile, which accounts for around 80% of payrolled employees, saw 0.52% M/M in Jan after a firmly upward revised 0.33% M/M in Dec (initial 0.20%). With this category now rising 4.15% Y/Y after latest revisions, the two series have broadly stabilized a little above 4% Y/Y.
• However, there is an important caveat here as this monthly wage acceleration coincided with a notable further decline in average hours worked, to 34.1 from a downward revised 34.2 in Dec (considering lower hours will mechanically push the average hourly earnings of salaried employees higher). It’s a joint low with only one-month in the pandemic and was last seen in mid-2010.

MNI US DATA: Unemployment Rate Would Have Been Even Lower Absent Population Updates

The BLS's "population control" update has had an impact on the unemployment rate as published for January, which fell to 4.011% unrounded (from 4.086% in December), below the consensus of an unrounded 4.1%. This was the lowest reading since May 2024. 

• MNI's calculations show that the unemployment rate would have been 3.999% (0.012 percentage points) lower in the absence of the population control changes (we are not sure how BLS arrived at the unemployment rate figures in their table below which appear to be a decimal place off, but either way, the direction is the same). The last time we saw a sub-4% print, unrounded or otherwise, was May 2024.
• Population controls reflect updated population estimates but don't alter historical data. This series break means that changes in employment and unemployment between Dec and Jan can’t be directly compared.
• The number of unemployed dropped 37k in January vs December, but their number would have dropped 142k absent the population control effect, while the civilian labor force rose 91k absent the population control.
• The adjusted rise in employment in January vs December was 234k (a pullback from 478k in December), with 85k added to the ranks of "not in the labor force".
• Prime-age (25-54) unemployment was down to 3.36%, an 8-month low, with the drop from 3.49% in December appearing to reflect population control effects at least in part.

MNI US DATA: Tariff Impact Clear as Year-Ahead Inflation Expectations Surge

UMich sentiment posting a notable uptick in one-year inflation expectations here - up to 4.3% from 3.3% prior. Reasonable to believe that it's the tariff threats showing up in expectations as the survey period covered January 21st and concluded on February 4th - just three days ago. Tariffs also mentioned explicitly in the slowdown in buying conditions for durables: "in part due to the perception that it may be too late to avoid the negative impact of tariff policy".

MNI US DATA: Partisanship Means UMIch Inflation Expectations Should Be Discounted

While import tariff concerns may have factored into the jump in 1Y forward inflation expectations in the UMichigan survey for February (to 4.3% from 3.3% in January) we would highly discount the signal it is sending about actual inflation expectations due to the large and widening partisan gap.

• Namely, the spread of Democrat respondents' 1Y inflation expectations (5.1%) jumped to a 5.1pp gap over those of Republicans, who increasingly see inflation concerns diminishing (0.0%).
• In October, prior to the November election that saw a Republican "sweep", Democrats saw 1.8% with Republicans 3.1%.
• Tariffs do appear to be playing a part here, but it is almost impossible to disentangle their impact on consumer perceptions from the partisan divide.
• As such we don't think these readings should be taken either seriously or literally, and it's also likely the Fed will be looking at this data skeptically.

MARKETS SNAPSHOT

Key market levels of markets in late NY trade:
DJIA down 427.58 points (-0.96%) at 44320.99
S&P E-Mini Future down 55.75 points (-0.91%) at 6049.5
Nasdaq down 267.3 points (-1.4%) at 19524.39
US 10-Yr yield is up 5.6 bps at 4.4906%
US Mar 10-Yr futures are down 12.5/32 at 109-6
EURUSD down 0.0059 (-0.57%) at 1.0324
USDJPY down 0 (0%) at 151.41
WTI Crude Oil (front-month) up $0.41 (0.58%) at $71.02
Gold is up $4.48 (0.16%) at $2860.86

European bourses closing levels:
EuroStoxx 50 down 31.23 points (-0.58%) at 5325.4
FTSE 100 down 26.75 points (-0.31%) at 8700.53
German DAX down 115.42 points (-0.53%) at 21787
French CAC 40 down 34.59 points (-0.43%) at 7973.03

US TREASURY FUTURES CLOSE

3M10Y +4.506, 15.242 (L: 6.696 / H: 17.205)
2Y10Y -1.683, 20.141 (L: 15.889 / H: 23.463)
2Y30Y -1.755, 40.333 (L: 36.387 / H: 43.685)
5Y30Y -0.951, 35.112 (L: 31.546 / H: 37.393)
Current futures levels:
Mar 2-Yr futures down 5/32 at 102-22.625 (L: 102-22.37 / H: 102-30.75)
Mar 5-Yr futures down 9.75/32 at 106-13.75 (L: 106-11 / H: 107-00)
Mar 10-Yr futures down 12.5/32 at 109-6 (L: 109-01 / H: 110-00)
Mar 30-Yr futures down 20/32 at 115-15 (L: 115-07 / H: 117-01)
Mar Ultra futures down 29/32 at 120-24 (L: 120-11 / H: 122-20)

MNI US 10YR FUTURE TECHS: (H5) Bullish Cycle Remains Intact

• RES 4: 110-25   High Dec 12
• RES 3: 110-19   76.4% retracement of the Dec 6  - Jan 13 bear leg   
• RES 2: 110-03+ High Dec 6
• RES 1: 109-30   61.8% retracement of the Dec 6  - Jan 13 bear leg
• PRICE:‌‌ 109-19+ @ 11:14 GMT Feb 7
• SUP 1: 108-20+ Low Feb 4  
• SUP 2: 108-06/107-06 Low Jan 23 / 13 and the bear trigger
• SUP 3: 107-04   Low Apr 25 ‘24 and a key support
• SUP 4: 106-11   2.00 proj of the Oct 1 - 14 - 16 price swing  

A bull phase in Treasury futures remains in play and the contract is holding on to its latest gains. Price has traded through the 50-day EMA of 109-11. This highlights potential for a stronger reversal and sights are on 109.30, a Fibonacci retracement. On the downside, initial support to watch is unchanged at 108-20+, Tuesday’s low. Clearance of it would signal a reversal and the end of a corrective cycle.

SOFR FUTURES CLOSE

Mar 25 -0.020 at 95.720
Jun 25 -0.065 at 95.825
Sep 25 -0.090 at 95.920
Dec 25 -0.10 at 95.985
Red Pack (Mar 26-Dec 26) -0.10 to -0.09
Green Pack (Mar 27-Dec 27) -0.085 to -0.075
Blue Pack (Mar 28-Dec 28) -0.065 to -0.065
Gold Pack (Mar 29-Dec 29) -0.065 to -0.055

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
​​​​​​​
SOFR Benchmark Settlements:

• 1M +0.00505 to 4.31519 (+0.00213/wk)
• 3M +0.00659 to 4.30394 (+0.00169/wk)
• 6M +0.01089 to 4.25772 (+0.00941/wk)
• 12M +0.01854 to 4.17911 (+0.01881/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.36% (+0.03), volume: $2.365T
• Broad General Collateral Rate (BGCR): 4.34% (+0.03), volume: $913B
• Tri-Party General Collateral Rate (TCR): 4.34% (+0.03), volume: $899B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $104B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $281B

FED Reverse Repo Operation

RRP usage climbs to $95.248B this afternoon from yesterday's $79.983B - compares to Wednesday's $78.788B -- lowest level since mid-April 2021. The number of counterparties recedes to 33 from 38 prior.

PIPELINE: No new US$ corporate bond issuance Friday after $66.165B total priced on the week:

• Date $MM Issuer (Priced *, Launch #)
• $12B Priced Thursday,
• 02/06 $2.5B *Bank of America 11NC10 +132
• 02/06 $2B *Marathon Petroleum $1.1B 5Y +95, $900M 10Y +127
• 02/06 $1.9B *Mizuho $700M 6.25NC5.25 +82, $300M 6.25NC5.25 SOFR+108, $900M 11.25NC10.25 +98
• 02/06 $1.5B *Cargill $700M 3Y +42, $300M 3Y SOFR+61, $500M 10Y +73
• 02/06 $1.25B *Ma'aden Sukuk $750M 5Y +100, $500M 10Y +110
• 02/06 $1.2B *Oriental Rep of Uruguay 12Y +100
• 02/06 $1B *IFC 4.5Y SOFR+36
• 02/06 $650M *Embraer Netherlands 10Y +158
• 02/06 $500M BOAD 30NC5 8.2%

MNI BONDS: EGBs-GILTS CASH CLOSE: US Tariff Talk Spurs Late Rally

European bonds rallied late in Friday's session on the latest US tariff intrigue, reversing earlier losses.

• Bunds and Gilts weakened sharply after the US employment report showed higher than expected wage gains and lower unemployment.
• But global core instruments rallied in a risk-off move toward the cash close as Reuters reported that US President Trump was planning to issue reciprocal tariffs as early as Friday (though there was no more detail provided).
• German industrial production was much weaker than expected, but wasn't a market mover. The nominal neutral rate of interest in the eurozone was likely in a range of 1.75% to 2.25% as of Q4 2024, according to estimates by ECB staff released Friday. BOE's Pill set a high bar to him voting for a 50bp cut.
• The German curve twist steepened, with the UK's leaning bull flatter.
• Periphery EGB spreads widened into the cash close following the Trump tariff report, with BTPs underperforming on the day.
• Next week's scheduled highlights include UK and Eurozone GDP data, along with appearances by ECB's Lagarde and Schnabel (with an MNI event with ECB's Elderson) and BOE's Mann, Bailey, and Greene.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.1bps at 2.048%, 5-Yr is down 1.3bps at 2.153%, 10-Yr is down 0.7bps at 2.372%, and 30-Yr is up 0.9bps at 2.621%.
• UK: The 2-Yr yield is down 0.6bps at 4.168%, 5-Yr is down 0.2bps at 4.173%, 10-Yr is down 0.9bps at 4.476%, and 30-Yr is down 0.6bps at 5.056%.
• Italian BTP spread up 2.7bps at 109.4bps / French OAT up 0.3bps at 71.9bps   

MNI FOREX: Greenback Advances as Trump Tariff Announcements Awaited Next Week

• U.S. businesses created fewer jobs in January than the previous month and market forecasts, but the unemployment rate unexpectedly dipped a tenth to 4.0%, reinforcing the Federal Reserve's propensity to keep rates on hold for now. This dynamic provided sharp two-way swings for the greenback following the data.
• Initially, the US dollar gapped lower and prompted a 151.35 print for USDJPY. However, there was a very swift reversal which took the pair to a fresh session high of 152.42 just 1 minute after the release.
• This mixed sentiment prompted the USD index to oscillate around unchanged levels in the following hours, however, as Trump headlines began to cross, the USD remained on the front foot for the majority of the late Friday session.
• A plethora of tariff related headlines prompted a lot of noise in G10 currency markets, however, the underlying message that announcements will be made on reciprocal trade has bolstered a risk off theme, supporting haven currencies.
• The euro was hard hit during the flurry of messaging, with EURUSD extending the pullback from 50-day EMA resistance to around 1.4%, a level that was firmly rejected during Wednesday’s session. This renewed weakness places the focus back on 1.0272, the Feb 4 low.
• For EURJPY, weakness today briefly extended the week’s decline to around 3.05%. Price action saw the cross pierce key support at 156.18, the Dec 3 low. Below here, greater attention will be on the medium-term cluster of support between 153.27 and 154.46.
• JPY strength has been a key development of currency markets this week amid a relatively more hawkish BOJ narrative, and USDJPY has had two tries below the 151 handle on Friday. A solid bounce has ensued on both occasions with market participants citing an oversold condition for the pair and a late mention from Trump that tariffs on Japan are an option.
• Global FX markets will continue to be primarily driven by tariff related developments, however, Chinese CPI/PPI data is also due this weekend. 

MONDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
10/02/2025	0700/0800	***	NO	CPI Norway
10/02/2025	-	***	CN	Money Supply
10/02/2025	-	***	CN	New Loans
10/02/2025	-	***	CN	Social Financing
10/02/2025	1330/0830	**	US	US CPI Annual Revised
10/02/2025	1400/1500		EU	ECB's Lagarde participates in plenary debate on ECB 2023 Report
10/02/2025	1530/1030		CA	BOC market participants survey
10/02/2025	1600/1100	**	US	NY Fed Survey of Consumer Expectations
10/02/2025	1630/1130	*	US	US Treasury Auction Result for 13 Week Bill
10/02/2025	1630/1130	*	US	US Treasury Auction Result for 26 Week Bill
11/02/2025	0001/0001	*	GB	BRC-KPMG Shop Sales Monitor