MNI EUROPEAN OPEN: Trump Tariff Threats Continue

Jan-28 05:28By: Jonathan Cavenagh

Europe

EXECUTIVE SUMMARY

TRUMP VOWS ‘NEAR FUTURE’ TARIFFS, CALLS DEEPSEEK PROGRESS ‘GOOD’ - BBG
TRUMP PLEDGES TARIFFS ‘MUCH BIGGER” THAN 2.5% AND ON KEY SECTORS- BBG
RATE CUTS ON PAUSE BUT FOMC KEEPS EASING BIAS - MNI FED WATCH
ECB SET TO DELIVER FOURTH CONSECUTIVE RATE CUT - MNI WATCH
A FORMER RBNZ OFFICIAL SHARES HIS OCR OUTLOOK - MNI

Fig 1: USD BBDXY Index & 1 Month Risk Reversal

Source: MNI - Market News/Bloomberg

RENTS (BBG): " London rent inflation cooled to the weakest in three years, bringing some relief to the UK capital’s hard-pressed tenants, according to Rightmove. "

FOOD PRICES (BBG): "UK food prices climbed at the fastest pace in nine months at the start of 2025, adding to a growing list of inflation threats for the Bank of England to grapple with at its crucial meeting next week."

ECB (MNI WATCH): The European Central Bank is set to lower its deposit rate by 25 basis points to 2.75% on Thursday, in its fourth consecutive cut, and should also reiterate that its policy direction remains clear and that it will maintain its meeting-by-meeting and data-dependent approach.

TARIFFS (BBG): “President Donald Trump said he would soon impose tariffs on foreign pharmaceuticals, semiconductors and metals, and heralded news of DeepSeek’s apparent progress in artificial intelligence as “a positive,” as he addressed House Republicans on Monday.”

TARIFFS (BBG): “President Donald Trump said he wants to enact across-the-board tariffs that are “much bigger” than 2.5%, the latest in a string of major signals Monday that he’s preparing widespread levies to reshape US supply chains.”

TARIFFS (FT): “ Donald Trump’s Treasury secretary Scott Bessent is pushing for new universal tariffs on US imports to start at 2.5 per cent and rise gradually, said four people familiar with the proposal.”

GLOBAL TECH (RTRS): “ Global investors dumped tech stocks on Monday as they worried that the emergence of a low-cost Chinese artificial intelligence model would threaten the dominance of AI leaders like Nvidia evaporating $593 billion of the chipmaker's market value, a record one-day loss for any company on Wall Street.”

TREASURY (MNI BRIEF): The U.S. Senate on Monday voted 68 to 29 to confirm Scott Bessent to be President Trump’s Treasury secretary, putting in place the new administration’s top economic official who will steer an agenda that is focused on tax cuts, tariffs and deregulation.

FED (MNI FED WATCH): The Federal Reserve is set to keep interest rates on hold Wednesday after delivering 100 basis points of cuts at the end of 2024, shifting to a more cautious stance as it awaits further signs that disinflation will continue.

OTHER

JAPAN (MNI BRIEF): Japan’s services producer price index rose 2.9% y/y in December, slowing from November’s unrevised 3.0%, showing that corporate pass-through of cost increases remained solid, preliminary data released by the Bank of Japan on Tuesday showed.

JAPAN (MNI BRIEF): Japan's government on Tuesday nominated Junko Koeda, a professor at Waseda University, as the replacement for Bank of Japan Board Member Seiji Adachi, whose term ends on March 25, Nikkei reported.

NEW ZEALAND (MNI): A former RBNZ official shares his OCR outlook. On MNI Policy MainWire now, for more details please contact sales@marketnews.com

NEW ZEALAND (BBG): “Retailing may lead NZ’s economic recovery in 2025 as lower interest rates lift confidence and spending, the Treasury Dept says in its Fortnightly Economic Update.”

CHINA

PROPERTY (BBG): “ China Vanke Co. has been thrown a lifeline by state authorities, a rare show of support that signals the developer may be too big to fail even after dozens of property firms defaulted amid China’s punishing housing slump.”

US/CHINA (BBG): "Microsoft Corp. is in talks to acquire the US arm of ByteDance Ltd.’s TikTok, President Donald Trump said Monday night, without elaborating."

MARKET DATA

NEW ZEALAND DEC JOBS FILLED M/M 0.1%; PRIOR 0.2%

AUSTRALIA DEC NAB BUSINESS CONDITIONS 6; PRIOR 3
AUSTRALIA DEC NAB BUSINESS CONFIDENCE -2; PRIOR -3

JAPAN DEC PPI SERVICES Y/Y 2.9%; MEDIAN 3.2%; PRIOR 3.0%

MARKETS

US TSYS: Tsys Futures Slightly Lower, Focus On FOMC Tomorrow

It has been a relatively quiet session today, following last nights sell-off in risk assets, focus is now on Wednesday FOMC meeting. Tsys futures have given back a small portion of the overnight gains, although still trade near closing levels, with TU -01⅜ at 102-27⅝, while TY is -06 at 108-31.
Cash tsys curves have flattened a tough throughout the session, with the 2yr +1.7bps at 4.212%, while the 10yr is +1.6bps at 4.551%. The 2s10s unchanged at 33bps, while the 2s30s is -0.5bps at 58bps.
President Trump’s Treasury pick, Scott Bessent, reportedly supports a universal tariff on US imports starting at 2.5%, with monthly increases of the same amount. Meanwhile, Trump has signaled a preference for significantly higher tariffs, stating they should be “much bigger” than 2.5%.
Trump has also expressed eagerness to work with Congress on what he calls the largest tax cuts and reforms in US history. Speaking at a House Republican retreat in Florida, he emphasized avoiding delays in the budget process and said he is flexible on whether the changes are passed in one bill or multiple bills. Trump reiterated his campaign promises not to tax tips, Social Security, or overtime payments, stressing the goal of lowering taxes for all Americans, not just the wealthy.
The majority of Asian markets will be out at some point this week for Chinese New Years, so expect trading to be on the quiet side, later tonight we have Durable Goods Orders, FHFA House Price Index, Conf. Board Consumer Confidence, Richmond Fed Manufact. Index as well as earnings from PACCAR, Sysco Corp, Synchrony Financial, Lockheed Martin Corp, Veradigm, Royal Caribbean, Polaris Inc., Boeing, NextEra Energy, JetBlue Airways, General Motors, Kimberly-Clark Corp, Invesco, Starbucks, Qorvo and Stryker Corp.

JGBS: Futures Holding Stronger After PPI Services Miss

JGB futures are stronger, +21 compared to settlement levels

Outside of the previously outlined lower-than-expected PPI Services data, there hasn't been much by way of domestic drivers to flag.
PM Ishiba’s government nominates female economist Junko Koeda to join the BoJ’s policy-setting board at the end of March.
The market has priced in a policy rate of 0.75% by the end of the year and is increasingly focused on the possibility of rates reaching 1.0% or higher. Current pricing reflects expectations of continued modest hikes, though some analysts caution that market assumptions may be overly optimistic. The BoJ’s statement reiterated its willingness to adjust rates further if economic conditions warrant, but the lack of specific guidance has left room for speculation.
Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after yesterday’s strong rally. The focus remains on Wednesday's FOMC policy announcement, no move is expected.
Cash JGBs are flat to 2bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 1.2bps lower at 1.201% versus the cycle high of 1.262%.
Swap rates are flat to 1bp higher. Swap spreads are wider.
Tomorrow, the local calendar will see BOJ Minutes of the Dec. Meeting and the Consumer Confidence Index alongside 5-year GX supply.

AUSSIE BONDS: Richer Ahead Of Tomorrow’s Q4 CPI & FOMC (Thu Morning Local Time)

ACGBs (YM +6.0 & XM +5.0) are stronger but off session bests after business conditions improved in December.

The NAB survey showed that conditions climbed 3 points to +6, reversing declines from the prior month and almost returning to its long-run average. Business confidence edged up 1 point to -2.
Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after yesterday’s strong rally.
Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at -12bps.
Swap rates are 5bps lower.
The bills strip has bull-flattened, with pricing +2 to +7.
Tomorrow’s Q4 CPI data could be pivotal in determining whether the RBA initiates a long-anticipated monetary easing cycle. It may also influence the timing of an election, which must be held by May 17. Economists predict the trimmed-mean CPI will have declined to 3.3%, marking its lowest level in three years.
RBA-dated OIS pricing is 1-6bps softer across meetings today. A 25bp rate cut is more than fully priced for April (124%), with the probability of a February cut at 78% (based on an effective cash rate of 4.34%).

BONDS: NZGBS: Richer But Well Off Bests, Fin Min In Parliament Tomorrow

NZGBs closed 3-6bps richer, with a flatter 2/10 curve, but well off session bests. The local market was 7-8bps richer early after yesterday’s strong lead-in for US tsys. Cash US tsys are ~2bps cheaper in today’s Asia-Pac session.

NZGBs slightly outperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials narrowing by 1-2bps. The NZ-US 10-year yield differential, now at -7bps, is edging closer to the cyclical low of -15bps recorded in December 2022—the lowest since late 2020.
Swap rates closed 2-3bps lower.
RBNZ dated OIS pricing closed 1-4bps softer across meetings, with late 2025 leading. 48bps of easing is priced for February, with a cumulative 113bps by November 2025.
Tomorrow, Finance Min Willis speaks to the Select Committee on the Budget Policy Statement and Half-Year Economic and Fiscal Update. RBNZ Chief Economist Paul Conway will also present a speech titled: Beyond the Cycle: Growth and interest rates in the long run.
On Thursday, the NZ Treasury plans to sell NZ$200mn of the 1.50% May-31 bond, NZ$200mn of the 4.25% May-36 bond and NZ$100mn of the 1.75% May-41 bond.

FOREX: Dollar Rebounds On Trump Tariff Threats

The USD has been on the front foot for much of today's Asia Pac session. The BBDXY index was last +0.40% and trading above 1302.00. The DXY was up around 107.9, +0.50%.

A number of Trump related tariff headlines have crossed, which has aided broad based USD sentiment. Early comments saw Trump state tariffs would be imposed in the near future across a wide/key set of industries. These were followed by comments later on that Trump would want a much higher universal tariff rate than 2.5% (which according to the FT is what incoming Treasury Secretary Bessent is pushing for as an initial step on tariffs, before rising gradually).
The comments reinforce that tariffs are front and centre of Trumps economic plans.
US yields have ticked higher, although gains are not much 1-1.5bps across the key Tsy benchmarks. US equity futures are mixed, but not much beyond flat after Monday's sharp cash falls, led by the tech side (amid fresh AI competition fears from China). Regional equity markets are mixed.
Yen is unwinding some of Monday's outperformance (off around 0.85%). USD/JPY was last 155.80/85, back above the 50-day EMA (in the low 155.00 region). Yesterday's intra-session lows were at 153.72. Earlier data showed weaker than expected PPI services, up 2.9%y/y, versus 3.2% forecast.
AUD/USD is down 0.70%, last near 0.6250 and close to session lows. This puts us back close to the 20-day EMA support point. Earlier data showed Dec NAB business conditions rose to +6 form +3 in Nov. Confidence was weaker though and in negative territory.
In NZ, NZD/USD is off by 0.60%, last tracking under 0.5660. ERU/USD is down 0.55% to 1.0430/35.
Looking ahead, we have various US data points coming up, along with some Fed surveys (including the Richmond print). There is also some ECB speak.

EQUITIES: Asian Equities Fall On DeepSeek Fears

Asian shares declined amid concerns over inflated valuations in the AI sector following the rise of DeepSeek, a Chinese AI startup offering cheaper alternatives. The MSCI Asia Pacific Index fell 0.6%, with Japan’s tech stocks among the hardest hit. The dollar strengthened after President Trump advocated for steep universal tariffs and announced plans for levies on foreign semiconductors, metals, and pharmaceuticals. Meanwhile, Chinese markets were closed for the Lunar New Year holidays, leaving traders to assess slowing economic momentum. Indian small-cap stocks extended their bear market losses, while Japan’s semiconductor and AI-adjacent companies saw significant declines.

Japanese semiconductor and AI-related stocks slumped, led by Advantest (-18% over two days), SoftBank (-6.7%), and Tokyo Electron. The DeepSeek AI model raised fears of falling semiconductor demand and AI infrastructure investments, which also dragged power generation stocks lower. The TOPIX is now trading unchanged, while Nikkei is -1.25% lower.
Chinese markets were closed for the Lunar New Year, but investors are concerned about a slowdown in economic recovery despite recent stimulus. Developers like China Vanke saw some gains in Hong Kong after government support was pledged, but broader market sentiment remains cautious. The HStech Index is 0.75% higher, while the HSI is trading 0.15% higher.
Indian small-cap stocks entered a bear market, with the NSE Nifty Smallcap 250 Index dropping over 20% from its peak amid concerns over economic and earnings slowdowns. Foreign funds have been pulling out, compounding losses in recent months.
DeepSeek’s rise sparked a selloff in US tech stocks, with Nvidia losing $589b in market value overnight, the largest single-stock wipeout ever. Investors are closely watching major tech earnings this week to restore confidence in the AI sector as profit growth expectations weaken.

EQUITIES: HK Equities Slightly Higher, Chinese Semiconductor Stocks Struggle

The Hang Seng Tech Index is showing optimism heading into the Lunar New Year, buoyed by the potential for cheaper AI costs benefiting Chinese firms through DeepSeek. However, Chinese tech bulls face uncertainty as Hong Kong markets close until next Monday, leaving the sector exposed to potential volatility from US mega-tech earnings, where cautious outlooks could weigh on the Nasdaq. This poses a challenge to the recent positive divergence seen on Monday. Still, the golden cross from October supports a favorable near-term outlook for HSI tech stocks.
On Monday, the Philadelphia SE Semiconductor Index Fell 9.15% following the DeepSeek headlines. Hong Kong listed Chinese semiconductor stocks are struggling here in Asia, with SMIC down 5.6%, Hua Hong Semiconductor -4.2% & HG Semiconductor -6.5%
Mainland Chinese equity markets are closed today. HK benchmarks are trading mostly higher, with HS Tech Outperforming, up 0.80%, while the HSI trades just 0.25% higher.

OIL: Trump’s Threats Unlikely to Move OPEC+ Next Week.

In a show of contempt towards the new President, it is widely expected that next week’s OPEC+ meeting will see no changes to the outlook for supply.
President Trump last week turned his attention to OPEC+ demanding more supply to bring the price of oil down.
Oil prices responded with 2% declines in Monday’s trading.
WTI opened at US$73.15 and has hovered around that level in today’s trading with low volumes.
Brent opened at US$77.08 again where it has stayed at in today’s trading.
A drone attack on Russia’s Ryazan oil refinery by drones has halted refining. The Ryazan refinery has a capacity of 17 tons/year of output.

Gold’s Fortunes in the Hands of USD.

Despite the safe-haven status it enjoys, gold suffered yesterday as the USD gained as markets came to grips with the latest tariff threats, and a tech route saw a flight to the dollar.
With President Trump threatening tariffs on steel, aluminum and copper imports, the USD gained – which typically limits the upside for gold prices.
The tech route wiped $1trillion from the NASDAQ on fears that the US may not have the AI superiority it thinks, giving support to the USD.
Gold fell 1% and trading today has oscillated around where bullion closed yesterday.
Opening at US$2,740.81 gold barely moved today to trade down to $2,739.84.

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
28/01/2025	0745/0845	**	FR	Consumer Sentiment
28/01/2025	0900/1000	**	EU	ECB Bank Lending Survey
28/01/2025	1000/1000	*	GB	Index Linked Gilt Outright Auction Result
28/01/2025	1330/0830	**	US	Durable Goods New Orders
28/01/2025	1355/0855	**	US	Redbook Retail Sales Index
28/01/2025	1400/0900	**	US	S&P Case-Shiller Home Price Index
28/01/2025	1400/0900	**	US	FHFA Home Price Index
28/01/2025	1400/0900	**	US	FHFA Home Price Index
28/01/2025	1430/1530		EU	ECB's Cipollone in panel on future of markets
28/01/2025	1500/1000	***	US	Conference Board Consumer Confidence
28/01/2025	1500/1000	**	US	Richmond Fed Survey
28/01/2025	1530/1030	**	US	Dallas Fed Services Survey
28/01/2025	1630/1130	**	US	US Treasury Auction Result for 2 Year Floating Rate Note
28/01/2025	1630/1130	*	US	US Treasury Auction Result for Cash Management Bill
28/01/2025	1700/1800		EU	ECB's Lagarde to meet with Ursula von der Leyen
28/01/2025	1800/1300	**	US	US Treasury Auction Result for 7 Year Note
29/01/2025	0030/1130	***	AU	CPI Inflation Monthly
29/01/2025	0030/1130	***	AU	CPI inflation
29/01/2025	0700/0800	*	DE	GFK Consumer Climate
29/01/2025	0700/0800	**	SE	Private Sector Production m/m
29/01/2025	0700/0800		SE	Flash Quarterly GDP Indicator
29/01/2025	0800/0900	***	ES	GDP (p)
29/01/2025	0830/0930	***	SE	Riksbank Interest Rate Decison
29/01/2025	0900/1000	**	EU	M3
29/01/2025	0900/1000	**	IT	ISTAT Consumer Confidence
29/01/2025	0900/1000	**	IT	ISTAT Business Confidence
29/01/2025	1200/0700	**	US	MBA Weekly Applications Index
29/01/2025	1330/0830	**	US	Advance Trade, Advance Business Inventories