MNI EUROPEAN OPEN: Tariff Talk Continues To Drive FX Sentiment

Jan-31 05:27By: Jonathan Cavenagh

Europe

EXECUTIVE SUMMARY

TRUMP TO HIT CANADA, MEXICO WITH 25% TARIFFS ON SATURDAY - BBG
TRUMP REPEATS TARIFFS THREAT TO DISSUADE BRICS NATIONS FROM REPLACING DOLLAR - RTRS
US PROBING IF DEEPSEEK GOT NVIDIA CHIPS FROM FIRMS IN SINGAPORE - BBG
ECB CUTS 25BP, SAYS RATES STILL RESTRICTIVE - MNI ECB WATCH
JAPAN JAN TOKYO CORE CPI RISES 2.5% VS. DEC +2.4% - MNI BRIEF

Fig 1: Tokyo CPI Y/Y Trends

Source: MNI - Market News/Bloomberg

ECB (MNI ECB WATCH): The European Central Bank reduced its benchmark Deposit Rate by 25 basis points to 2.75% on Thursday, its fourth consecutive cut, and left the language in its statement unchanged, expressing confidence that inflation will converge towards its 2% target in 2025.

US/GREENLAND (BBG): “The top US diplomat said President Donald Trump’s proposal to buy Greenland “is not a joke” because of the risk that China would station resources on the island that threaten American security and the importance of Arctic shipping lanes for energy exports.”

GERMANY (BBG): “Friedrich Merz’s hard-line shift on migration is a calculated gambit by the German conservative leader to neutralize the far right and deliver a breakthrough with wavering voters, according to people familiar with his thinking.”

TARIFFS (BBG): “President Donald Trump said he would follow through on his threat to impose 25% tariffs on imports from Canada and Mexico on Feb. 1, citing the flow of fentanyl and large trade deficits as among the reasons for his decision.”

TARIFFS (RTRS): “President Donald Trump on Thursday warned off BRICS member countries from replacing the U.S. dollar as a reserve currency by repeating a 100%-tariffs threat he had made weeks after winning the November presidential elections.

TARIFFS (RTRS): "U.S. President Donald Trump on Thursday said he would soon decide whether to exclude Canadian and Mexican oil imports from the 25% tariffs that he has vowed to impose on Saturday on the countries' products."

TECH (BBG): “US officials are probing whether Chinese AI startup DeepSeek bought advanced Nvidia Corp. semiconductors through third parties in Singapore, circumventing US restrictions on sales of chips used for artificial intelligence tasks, people familiar with the matter said.”

EARNINGS (BBG): “Apple Inc. gave a reassuring revenue forecast for the current quarter, helping boost shares of the world’s most valuable company after its holiday results showed jarring declines for China and the iPhone.”

FED (MNI INTERVIEW): Fed Won’t Consider Cuts ‘Til At Least May-Groen

OTHER

JAPAN (MNI BRIEF): The year-on-year rise in Tokyo core inflation accelerated to 2.5% in January from December’s 2.4%, above the Bank of Japan's 2% price target for the third straight month, data from the Ministry of Internal Affairs and Communications showed on Friday.

JAPAN (MNI BRIEF): Japan's industrial output rose 0.3% m/m in December for the first rise in two months following -2.2% in November, thanks to higher production machinery and electronic parts and devices, although production of automobiles fell, data released by the Ministry of Economy, Trade and Industry showed on Friday.

SOUTH KOREA (BBG): “Samsung Electronics Co.’s pivotal chip division reported a smaller-than-expected profit as the world’s largest memory maker fights to narrow the lead arch-rival SK Hynix Inc. has in the artificial intelligence arena.”

AUSTRALIA (MNI): Ex-RBA economists share their cash rate predictions. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.

CHINA

TARIFFS (BBG): "President Donald Trump says the US will make a determination on what the China tariff is going to be."

MARKET DATA

NEW ZEALAND DEC ANZ CONSUMER CONFIDENCE INDEX 96.0; PRIOR 100.2
NEW ZEALAND DEC ANZ CONSUMER CONFIDENCE M/M -4.2; PRIOR 100.2

AUSTRALIA Q4 PPI Q/Q 0.8%; PRIOR 1.0%
AUSTRALIA Q4 PPI Y/Y 3.7%; PRIOR 3.9%
AUSTRALIA DEC PRIVATE SECTOR CREDIT M/M 0.6%; MEDIAN 0.5%; PRIOR 0.6%
AUSTRALIA DEC PRIVATE SECTOR CREDIT Y/Y 6.5%; PRIOR 6.3%

JAPAN JANUARY TOKYO CPI Y/Y 3.4%; MEDIAN 3.0%; PRIOR 3.1%
JAPAN JANUARY TOKYO CPI EX FRESH FOOD Y/Y 2.5%; MEDIAN 2.5%; PRIOR 2.4%
JAPAN JANUARY TOKYO CPI EX FRESH FOOD, ENERGY Y/Y 1.9%; MEDIAN 1.9%; PRIOR 1.8%
JAPAN DEC JOBLESS RATE 2.4%; MEDIAN 2.5%; PRIOR 2.5%
JAPAN DEC JOB-TO-APPLICANT RATIO 1.25; MEDIAN 1.25; PRIOR 1.25
JAPAN DEC P IP -1.1%; MEDIAN -2.2%; PRIOR -2.7%
JAPAN DEC RETAIL SALES Y/Y 3.7%; MEDIAN 3.2%; PRIOR 2.8%
JAPAN DEC HOUSING STARTS -2.5; MEDIAN -3.9%; PRIOR 1.8%

MARKETS

US TSYS: Tsys Futures Break Below Overnight Lows, PCE Later

Tsys futures are trading lower today, and at session's worst with most contracts trading below the overnight lows. The move comes following further Trump tariffs headlines, and confirmation he will be signing more executive orders at 3pm ET time, with traders now positioning for an untick in volatility. TU is -02⅛ at 102-26+, while TY is -07 at 109-00+.
A bullish corrective cycle in tsys futures remains intact and the contract is holding on to its recent gains. 109-11+, the 50-day EMA, remains exposed. A clear break of it would strengthen a bullish theme and open 109-31, the Dec 18 high. The medium-term trend condition is bearish with the bear trigger at 107-06, the Jan 13 low. Initial support has been defined at 108-00, the Jan 16 low.
Cash tsys are trading 1.5-3bps higher today, the 2yr is +1.9bps at 4.226%, while the 10yr is +2.4bps at 4.541%. The 2s20s has steepened 0.50bps to 61bps.
Fed-dated OIS have ~4bp of cuts priced in for March meeting and just short of 50bp by year-end
Projected rate cuts through mid-2025 are steady to mildly lower vs. Thursday (*) levels as follows: Mar'25 at -3.9bp (-4.8bp), May'25 at -11.8bp (-12.9bp), Jun'25 at -22.6bp (-25.5), Jul'25 at -28bp (-30.5bp).
The core index of personal consumption expenditure is expected to rise 0.2% m/m last month, up from 0.1% in November, economists forecast.
Later today we have Personal Income & Spending, PCE Price Index & MNI Chicago PMI, while Fed Governor Michelle Bowman is scheduled to speak

JGBS: 10Y Leads Cheapening As Trump Tariffs Weigh, BoJ SOO on Monday

JGB futures are weaker and near session cheaps, -27 compared to settlement levels, aligning with the push higher in global yields following Trump tariff headlines. In addition to the 25% tariffs on Canada & Mexico, Trump mentioned he will impose tariffs on BRICS if they look to replace the USD in international trade.

Cash US tsys are 2-3bps cheaper in today's Asia-Pac session.
Focus also turns to the Fed coming out of the media Blackout and next week's key CPI & PPI inflation metrics ahead of the headline Employment data for January on Friday.
Earlier, Tokyo Jan CPI was above estimates for the headline but in line with the core measures. Dec jobless rate edged down to 2.4%, while the job-to-applicant ratio was unchanged at 1.25.
Dec IP (P) was better than forecast, up 0.3% m/m (0.2% est), while retail sales fell -0.7% m/m in Dec (-0.1% est).
Cash JGBs are flat to 2bps cheaper. The benchmark 10-year yield is 2.2bps higher at 1.239% versus the cycle high of 1.262%.
Swaps are cheaper, with rates 1-2bps higher.
Monday, the local calendar will see Jibun Bank PMI Mfg and BoJ Summary of Opinions for the January MPM alongside BoJ Rinban Operations for 1-5-year and 10-25-year JGBs.

AUSSIE BONDS: Modestly Cheaper As Tariff Talk Pressures Global Yields Higher

ACGBs (YM -1.0 & XM -3.0) are weaker with global bonds following Trump tariff headlines. In addition to the 25% tariffs on Canada & Mexico, Trump also mentioned he will impose tariffs on BRICS if they look to replace the USD in international trade.

Cash US tsys are cheaper following Trump tariff headlines, with the 3yr underperforming, up 3bps at 4.27%. The 10yr is +2bps at 4.54%.
Focus also turns to the Fed coming out of the media Blackout and next week's key CPI & PPI inflation metrics ahead of the headline Employment data for January on Friday.
Cash ACGBs are 1-3bps cheaper with the AU-US 10-year yield differential at -12bps.
Swap rates are 1-2bps higher.
The bills strip is flat to -3 across contracts.
RBA-dated OIS pricing is flat to 2bps firmer across meetings today. Nevertheless, a 25bp rate cut is more than fully priced for April (134%), with the probability of a February cut at 90% (based on an effective cash rate of 4.34%).
On Monday, the local calendar will see Retail Sales, Building Approvals, CoreLogic Home Values, S&P Global PMI Mfg, Melbourne Institute Inflation and ANZ-Indeed Job Advertisements.
A new 21 March 2036 Treasury Bond is planned to be issued via syndication in the week beginning 3 February 2025 (subject to market conditions). The Joint Lead Managers are: Barrenjoey Markets Pty Ltd; Commonwealth Bank of Australia; National Australia Bank Limited; and UBS AG, Australia Branch.

BONDS: NZGBS: Closed At Session Cheaps After Trump Tariff Talk Weighs

NZGBs closed at the session’s worst levels, slightly cheaper with yields 1bp lower to 2bps higher. Yields had been as much as 4bps lower early in the session.

With domestic data second-tier (home values and consumer confidence), the primary driver of the reversal was US tsys. Cash US tsys are cheaper following Trump tariff headlines, with the 3yr underperforming, up 3bps at 4.27%. The 10yr is +2bps at 4.54%.
In addition to the 25% tariffs on Canada & Mexico, Trump mentioned he will impose tariffs on BRICS if they look to replace the USD in international trade.
Focus also turns to the Fed coming out of the media Blackout and next week's key CPI & PPI inflation metrics ahead of the headline Employment data for January on Friday.
The swap curve closed with a twist-steepener, with rates 1bp lower to 1bp higher.
RBNZ dated OIS pricing closed flat to 5bps softer across meetings. 48bps of easing is priced for February, with a cumulative 123bps by November 2025.
The local calendar is empty on Monday.

FOREX: Yen Unwinds Some Outperformance Amid Higher US Yields, Tariff Focus Later

Aggregate G10 shifts have been very muted so far in Friday trade. The BBDXY USD index is little changed, holding close to 1304.7, which isn't far off highs that were seen post earlier headlines that US President Trump will impose tariffs on Mexico and Canada tomorrow. Headlines crossed from BBG that Trump will sign executive orders at 3pm ET.

USD/JPY has seen some modest shifts, the pair pull back to 153.92 before support emerged. We were last 154.35/40, little changed for the session. Earlier data showed stronger Tokyo CPI headline pressures, but core measures were close to expectations.
US yields have ticked higher, the 10yr up over 2bps to 4.54%, with Trump tariff threats impacting. This has helped stabilize US-JP yield differentials.
US equity futures are higher, led by Nasdaq futures as markets continue to digest earnings results.
AUD and NZD have ticked higher, but both currencies are sub pre trump tariff headlines. AUD/USD was last 0.6230, while NZD/USD was near 0.5645. AUD/USD has seen support around the 0.6200 level, while NZD has been supported ahead of 0.5620. Data releases in both economies hasn't impacted sentiment.
USD/CAD is very steady, last near 1.4480. We got close to 1.4600 late in Thursday trade as tariff headlines crossed. The 1 week risk reversal is very elevated near 2.50, highs back to 2020. Spot USD/MXN sits better within recent ranges, last near 20.68. Its 1 week risk reversal is higher, but within recent extremes.
Looking ahead, outside of tariff related risks, we have some German regional inflation data. In the US we have the PCE, along with Fed speak from Bowman. The MNI Chicago PMI also prints.

ASIA STOCKS: Asian Equites Mixed As South Korean Stocks Struggle

Asian equities are mixed after sharp losses in South Korean chipmakers as the market reopened from holidays and caught up with concerns over AI semiconductor demand. SK Hynix plunged over 10%, and Samsung fell 2.80% after missing profit expectations, following the global selloff triggered by Chinese AI startup DeepSeek’s cheaper model. Traders are debating whether this is a short-term correction or a deeper shift in the AI market.
Elsewhere, Singapore’s Straits Times Index surged nearly 2%, buoyed by defensive positioning and dividend yield appeal amid trade uncertainty. Australia’s ASX 200 is 0.50% higher on strength in mining stocks. Japanese equities are mostly higher, with the Nikkei 225 supported by tech optimism following strong ASML results, while the Topix remains in the green however has been weighed down by disappointing earnings from Oriental Land and Hino Motors.
Broader sentiment remains cautious as Trump’s new tariffs on Canada and Mexico add trade uncertainty, while AI-sector volatility continues to weigh on semiconductor-heavy markets.

Oil Markets Await News on Canadian Tariffs.

The threat of tariffs on Canadian oil imports saw a short term spike in oil prices in Thursday’s US trading session.
President Trump was quoted saying “We don’t need the products that Canada have. We have all the oil that you need. We have all the trees you need,” Trump remarked before indicating that a decision will be made Thursday evening on the timeframe for the application of tariffs. (as per BBG)
The risk is (at present) that markets become dismissive of tariff threats and ignore them, running the risk that they materialize.
US currently imports approximately 4 million barrels of oil a day from Canada for refining, with several refineries business models set up for almost exclusive supply of Canadian ‘sour’ crudes.
This saw Valero Energy Corp announce that it expects (should the tariffs be applied this Saturday as indicated) that refiners will be forced to cut production, potentially putting upward pressure on prices, rather the lower prices as Trump wants.
There is evidence to suggest that oil flow throw the Baltic Sea port of Ust-Luga in Russia appear to be impaired or even halted following drone attacks by Ukraine.
The port exports upward of 650,000 barrels per day, or as much as 20% of Russia’s seaborne exports.
WTI finished higher for the day, but there was significant intra-day volatility.
Opening at US$73, WTI traded down to $72.02, spiking to $73.84 before closing ahead at $72.70 and grinding higher throughout the day to $73.41.
For the week WTI is on track for over a 1.5% decline
Brent opened at US$76.77, trading down to a low of $76, reaching a high of $77.63 before closing at $77.25 only to drift higher throughout the day to $77.48.
For the week, Brent is on track to finish over 1.2% lower.
With no news yet from the White House on tariffs for Canada, oil markets are on hold waiting to see the next move.

Gold On Track for Strong Week Despite Monday’s Losses.

A softer USD overnight arose from US economic data missing estimates.
US fourth quarter GDP rose at +2.3%, down from +3.1% in the previous quarter and missing estimates of +2.6% suggesting rate hikes could be on the cards, causing bond yields to rally and the USD to fall.
This created a near perfect scenario for Gold and it rallied accordingly, up over 1% on the day to fully wipe out Monday’s losses.
Starting the day at US$2,793.84, gold did very little prior to the data release before rallying hard to a high of $2,798.58, before closing at $2,793.84, before edging up to $2,796.34.
Gold got off to a poor start this week but finished strong and is on track to finish +0.90% higher.
The data is somewhat in opposition to the views from the FED yesterday when they held rates steady, indicating that they could be on hold for some time.
Like most commodities, gold traders will watch closely for news on whether tariffs will be levied on Canada in the coming days.

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
31/01/2025	0700/0800	**	DE	Retail Sales
31/01/2025	0730/0830	**	CH	Retail Sales
31/01/2025	0745/0845	***	FR	HICP (p)
31/01/2025	0745/0845	**	FR	PPI
31/01/2025	0855/0955	**	DE	Unemployment
31/01/2025	0900/1000	***	DE	North Rhine Westphalia CPI
31/01/2025	0900/1000	***	DE	Bavaria CPI
31/01/2025	0900/1000	**	EU	ECB Consumer Expectations Survey
31/01/2025	1000/1100	**	IT	PPI
31/01/2025	1300/1400	***	DE	HICP (p)
31/01/2025	1330/0830	***	CA	Gross Domestic Product by Industry
31/01/2025	1330/0830	***	US	Personal Income and Consumption
31/01/2025	1330/0830	***	US	Employment Cost Index
31/01/2025	1330/0830	***	CA	Gross Domestic Product by Industry
31/01/2025	1330/0830		US	Fed Governor Michelle Bowman
31/01/2025	1445/0945	***	US	MNI Chicago PMI
31/01/2025	1600/1100		CA	Finance Dept monthly Fiscal Monitor (expected)
31/01/2025	1800/1300	**	US	Baker Hughes Rig Count Overview - Weekly