Stocks and bonds ended the Friday session lower with focus on tariffs. Sentiment was initially boosted on reports that President Trump was set to postpone the tariffs by one month to March 1st, however the White House Press Secretary announced this was false and that Canada and Mexico will be hit with 25% tariffs from Saturday, February 1st, while China will face 10% tariffs. This set the tone for the remainder of the session with both the Canadian Dollar and Mexican Peso selling off while T-Notes were pressured into settlement, and bear steepening. With the deadline fast approaching, Trump hit the wires just ahead of the closing bell noting that nothing can be done by Canada, China and Mexico to forestall tariffs, suggesting the time for negotiations is over. He also announced that there will be tariffs on chips, oil and gas from February 18th. He also said he will put tariffs on steel and aluminium this month or next. In response to the hawkish tariff commentary from Trump, this saw further pressure on CAD, and Peso, while oil prices also caught a bid post-settlement, rising to fresh peaks. The Dollar was supported by the Press Secretary’s denial of the postponement of tariffs, while she also highlighted that Trump is yet to make up his mind on a tariff timeline for the EU. However, Trump after hours announced they will be doing something very substantial on tariffs with the EU. Overall, US PCE data was in line with expectations on both headline and core while the consumption data came in above expectations, similar to what was seen in the Q4 report released on Thursday. Core PCE rose 0.156% vs exp. 0.2%, accelerating a touch from the prior 0.1%, while the six month annualised rate fell to 2.3%, the lowest level throughout 2024, while the 3mth annualised rate dropped to 2.2% from 2.6% in November. Core Y/Y rose 2.8%, maintaining the prior month’s pace. Headline M/M rose 0.2557%, in line with the 0.3% forecast and up from the prior 0.1%. Y/Y rose 2.6%, up from 2.4% in November. Consumption rose 0.7%, above the 0.5% forecast, accelerating from the upwardly revised 0.6%. Overall, the data does little to alter the view of the Fed with Fed Chair Powell largely stressing a no rush approach to future policy changes, particularly with uncertainty ahead due to new Trump policies. Analysts at Capital Economics highlight a lot depends if there is a repeat of the surge in prices at the start of last year, although note that Governor Waller had previously been optimistic on the path of inflation as these base effects abate. CapEco notes that “If we are right in our belief that there is no residual seasonality at work, then the annual core PCE inflation rate should fall markedly over the first few months of this year. Beyond that, however, the growing risk that Trump will impose tariffs a little earlier than we are assuming presents an upside risk to inflation.” Employment Costs Index rose by 0.9%, in line with expectations after rising 0.8% in Q3, but remained below the 1.2% jump seen in Q1’24. Regarding the components, Benefits rose 0.8% (prev. 0.8%) while wages and salaries increased by 0.9%. Elsewhere, compensation costs accelerated more in the private sector, 0.8% (prev.0.7%) relative to state and local government organisations, which fell to 0.9% from 1.1%. On the increase in the ECI in Q4, Oxford Economics said “it doesn’t justify changes to our forecast for inflation, consumer spending, or the path of monetary policy.” Ahead the firm, notes residual seasonality will put a little upward pressure on the ECI in Q1, but the Fed should look through this and as the Q4 figure “should reassure the Federal Reserve that the labour market isn’t a source of upward pressure on inflation”. Fed Governor Bowman, in a speech written before the in-line PCE report, towed her usual hawkish remarks. Bowman said that inflation is still elevated and upside risks remain, noting she still expects it to moderate, but more data is needed to confirm that before conducting more rate cuts. The Fed hawk said that current policy is in a good place for the Fed to monitor data and become clear on the impact of the Trump administration policies before cutting rates again. She expects further rate reductions this year, but future moves should be cautious and gradual, with time to assess data. It is not clear whether monetary policy is exerting much pressure on the economy, with easy financial conditions and high asset prices possibly slowing progress on inflation. She is watching long-term Treasury yields as a potential sign that markets are expecting tighter policy will be needed to control inflation. She stressed the labour market is not especially tight, but wage growth is still inconsistent with the 2% inflation target, while she noted how Q1 data will be important to see how quickly inflation will improve going forward. Bowman added that fragility of supply chains, geopolitical tensions, release of pent-up demand post-election, and other factors could also feed inflation. As expected, the ECB pulled the trigger on another 25bps rate cut, taking the Deposit Rate to 2.75%. The policy statement saw the GC reiterate that it will retain its meeting-by-meeting and data-dependent approach whilst not pre-committing to a specific policy path. Despite Thursday’s easing, policymakers still see policy as “restrictive”. In terms of the economic assessment, the statement noted that the economy is still facing headwinds but demand should pick up over time. Elsewhere, inflation is seen as “high” but has developed in-line with expectations and the disinflation process is well on track. At the follow-up press conference, the overall lack of overtly dovish signals from Lagarde in her opening remarks elicited a hawkish reaction within the marketplace. However, as the Q&A segment got underway, this move faded as Lagarde noted that Thursday’s decision was unanimous and there was no discussion of the terminal rate despite recent comments from Germany’s Schnabel that the ECB is getting closer to the point at which it needs to look at whether and how much further it can cut interest rates. Elsewhere, Lagarde noted that the debate about neutral rates is “entirely premature” and cannot say if rates will go below neutral. Note, on February 7th the ECB will publish a paper on the revision of the natural interest rate. Additionally, the ECB will publish its debut release of its latest wage tracker. Overall, the ECB is continuing to dial back the level of policy restrictiveness. However, it is cautious in doing so on account of the uncertainty stemming from the looming threat of tariffs by the Trump administration which has clouded the bloc’s growth outlook. As the dust settles on the announcement, year-end pricing is little changed with around 70bps of easing seen by the December meeting. Post-meeting and press conference, both Reuters and Bloomberg sources implied another 25bps rate cut in March but further debate thereafter. Highlighting this, Reuters noted that ECB policymakers expect to cut rates again in March with a broader and deeper debate after that, potentially implying an April pause. Later, BBG stated the ECB may drop “restrictive” label on rate stance as soon as March, and with another 25bps rate cut highly likely then, bringing the deposit rate to 2.5%, such a level may not fully deserve that label anymore. Elsewhere, Oil closed Friday with a 2% gain while despite a stronger Dollar, Gold ended Friday with a gain of 1.2%.
To mark my 3125th issue of TraderNoble Daily Commentary I am offering a special 2-Year rate of Euro 2750 for my Platinum Service which includes 1 monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 714 points on Friday, closing January with a gain of 2768 points, after closing December with a gain of 1997 points after closing November with a gain of 3049 points having finished October with a gain of 2179 points. September saw a gain of 4402 points following a 301-point loss for August after closing July with a gain of 1918 points while June closed with a gain of 2074 points, having made 1843 points in May. The Platinum Service made 4010 points in April after ending March with a gain of 2113 points. February closed with a gain of 1606 points, after closing January with a gain of 3675 points. December saw a gain of 1890 points after finishing November with a gain of 1734 points. October ended with a gain of 3184 after closing September with a small gain of 228 points, after finishing August with a gain of 1485 points, following a small gain of 285 points gain in July, after closing June with a gain of 2683 points. May closed with a gain of 3205 points. April saw a gain of 3354 points while March closed with a gain of 6168 points. The Platinum Service made a record 9619 points last October. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1900 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Recent Comments