U.S. Indices endured a choppy session but closed notably in the green, and at highs as they saw a notable bid into settlement amongst month-end, despite the initial sell-off seen post-US open. US January PCE was the scheduled data highlight, but turned out to be a damp squib, in terms of market reaction, as both headline and core metrics M/M and Y/Y printed in line. At the same time, US advanced goods trade balance deficit soared ~26% M/M as imports surged amid potential front-loading ahead of tariffs. In the wake of the data, the latest Atlanta Fed GDPnow model for Q1 forecasted -1.5% from +2.3%, which prompted risk-off trade – US equity futures sold, Treasuries bid, and the Japanese Yen firmed. Nonetheless, the session highlight came after a fiery and argumentative meeting between US President Trump and Ukraine President Zelensky. Summarising, Trump told Zelensky “You are gambling with World War III”, “You either make a deal or we are out”. Following the meeting, where a joint press conference was originally scheduled, Trump posted on ‘’Truth’’, that Zelensky disrespected the U.S. and he could come back when ready for peace. Summarising the fallout, a minerals deal was not signed, the joint press conference was cancelled, and leaders throughout Europe have announced their solidarity with Ukraine. In the wake of the fireworks, the Dollar and WTI saw upside, with the latter’s move to the detriment of all G10 FX peers. Elsewhere, the crude complex settled slightly lower, but well-off earlier lows, following Trump and Zelensky’s aforementioned fiery meeting, whereby Zelensky was asked to leave the White House. Meanwhile, the Treasuries rally resumed as concerns over the US economy returned and geopolitical tensions climbed. U.S. January PCE was in line with expectations as Headline M/M and Y/Y printed 0.3% (exp. 0.3%, prev. 0.3%, unrounded 0.3254%) and 2.5% (exp. 2.5%, prev. 2.6%), respectively. Meanwhile, Core M/M came in at 0.3% or 0.2847% unrounded (exp. 0.3%, prev. 0.2%), while Y/Y was 2.6% (exp. 2.6%, prev. 2.9%). The 6-month annualised rate climbed to 2.5% (prev. 2.3%), while the 3- month annualised rate was unchanged at 2.2%. Capital Economics notes that favourable base effects mean downward progress on core inflation is likely to continue over the next few months, before it is cut short when some combination of Trump’s reciprocal and wider tariffs come into effect. Elsewhere, Personal income rose 0.9% (exp. 0.3%, prev. 0.4%). Adj. consumption eased 0.2% (exp. 0.1%, prev. 0.8%), while real consumption declined 0.5% (prev. +0.5%). For the latter, CapEco notes while it is tempting to pin the fall entirely on harsh winter weather last month, the breakdown shows that spending in some typically weather-related categories (food services and accommodation) outperformed. CapEco adds, that it is not to say the weather did not have any impact and they do expect consumption to rebound this month. Even so, as the fall was greater than they forecasted, it poses a downside risk to CapEco’s Q1 GDP estimate of 1.5%. Note, the latest Atlanta Fed GDPnow (Q1) sees a decline of 1.5% (prev. 2.3%). Ahead, with the inflation rate still too hot for the Fed’s liking and, with inflationary tariff measures pilling up, Capital Economics stand by its view that rate cuts are off the table this year. Elsewhere, Oil closed lower by 0.84% while Gold ended Friday with a loss of 2%.
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